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AUTHOR: 


YALE  UNIVERSITY. 
SHEFFIELD  SCIENTIFIC 


TITLE: 


EVERY-DAY  ETHICS 


PLACE: 


NEW  HAVEN 

DA  TE : 

1910 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DEPARTMENT 

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3  p.  1.,  ISO  p.^^lj-.        $125 
Prouty.-Speculation,  by  H.  C.  Emery  ^    ""'P°"^"°"'   ^y  C.   A. 

„P;ou.y.  Charles  Azro.  18Si-        v.  Jn,ery.  Hy.lry'-ay.fe   "°'"    "" 

Library  of  Congress    '      ,^)     HF5386.Y15  ^^^^^ 

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GIVEN    BY 


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I      I 


EVERY-DAY  ETHICS 


■  tm 


4 


EVERY-DAY    ETHICS 


& 


ADDRESSES  DELIVERED  IN  THE  PAGE 
LECTURE  SERIES,  1909,  BEFORE  THE 
SENIOR  CLASS  OF  THE  SHEFFIELD 
SCIENTIFIC  SCHOOL,  YALE  UNIVERSITY 


n 


t  'i 


NEW  HAVEN,  CONNECTICUT 

YALE    UNIVERSITY    PRESS 

London:  HENRY  FROWDE 

OXFORD   UNIVERSITY  PRESS 

1910 


Copyright,  1910,  by 
Yale  University  Press 


Published,  February,  1910 


|74 


V? 


1911  t 


'# 


i 


I 

4 


I 


CONTENTS 


JOURNALISM     . 


ACCOUNTANCY 


•  •  • 


•  • 


PAGE 

Norman  Hapgood  1 


Joseph  E.  Sterreit 


16 


^ 


LAWYER  AND  CLIENT    .      .      .      John  Brooks  Leavitt        41 


TRANSPORTATION       ....       Charles  A.  Prouty  70 


SPECULATION         Henry  C.  Emery  107 


^-^ 


Printed  in  the  United  States 


'i' 


I 


* 


JOURNALISM 


BY    NORMAN    HAPGOOD 

Men  have  very  different  ways  of  approaching 
ethical  questions.    There  is  an   absolute  type  of 
mind  which  fixes  a  standard  of  exactly  what  it  ^ 
thinks  ought  to  be,  and  judges  severely,  according      . 
to  that  standard.     Then  there  is  the  more  relative  ^ 
or  historical  approach,  which  judges  a  thing  good 
or  bad,   according  as  it  surpasses  or  falls  beloWJrl 
what  has  gone  before,  or  what  is  the  general  level  '\ 
of  the  time.     In  discussing  the  ethics  of  journalism, 
should  we  look  upon  a  newspaper  as  fulfilling  its 
duty  if  it  is  as  accurate  and  conscientious  as  an 
individual   whom  we   should   deem   a  good   man? 
Or  should  we  say,  ''The  public  looks  to  the  news- 
paper for  the  truth  — for  the  trustworthy  facts. 
If  it  does  not  give  the  facts  it  fails  in  its  duty.     It  ^ 
fails  in  its  obUgation.     It  deceives  the  people.     It 
is  untrue  to  a  trust.''     If  any  of  you  hears  a  state- 
ment from  one  of  your  friends,  or  from  a  man  in  the 
street,  or  from  me,  or  from  a  professor,  you  accept 
it  with  reservation.    You  know  that  we  may  be 
biassed,  or  inspired  by  malign  motives,  or  carelessly 
repeating  hearsay.     The  man  who  believes  every- 
thing he  is  told  is  fit  for  nothing  except  food  for 

1 


JOURNALISM 


JOURNALISM 


the  classes  that  prey.    My  own  opinion  is  that,  in 
judging  newspapers,  we  should  bear  in  mind  both 
of  these  standards.     If  a  newspaper  is  at  least  more 
accurate  than  you  or  I,  we  should  give  it  credit  for 
that  accuracy.    If  it  is  more  unbiassed,  more  likely 
to  give  the  facts  on  a  side  in  a  controversy,  while 
supporting  the  other  side  itself,  we  should  recognize 
this  fairness,  in  so  far  as  it  makes  for  progress.    Wliat- 
ever  we  may  find  in  it  to  condemn,  we  should  at 
the  same  time  reahze  that,  without  the  newspapers 
as  they  are  to-day.  Democratic  government  would 
I    I     be  an  impossibility.    Such  concessions  need  in  no 
way  interfere  with  our  holding  at  the  same  time 
a  stricter  standard  before  the  press.     If  I  hear  that 
John    Smith,    of    111    Harlem   Avenue,    has   been 
arrested  for  drunkenness,   and  repeat  it,  and  the 
actual  fact  is  that  it  was  another  John  Smith,  of 
113   Harlem  Avenue,   I  am  certainly  less  blame- 
worthy  for  speaking  without   absolute  knowledge 
^  than  a  newspaper  would  be.    This  is  the  kind  of 
inaccuracy   for   which   a  newspaper   is   constantly 
forced  to  atone  in  money,  although,  usually,  not  in 
adequate    publicity.    There    is    a   vaguer    sort    of 
inaccuracy  —  the  unjust  criticism,  the  inadequate 
quotation,  the  unfair  implication  which  the  news- 
papers are  constantly  making,  and  never  rectifying. 
I  come  to  you  fresh  from  an  experience  which  has 
too  much  in  it  that  is  typical.     I  happen  to  believe 
in  direct  nominations,  and  spoke  a  few  days  ago  in 
favor  of  them  at  Albany.    I  had  written  nothing 


I 


ahead,  except  a  few  hundred  words  of  outline,  all 
the  points  in  which  were  taken  up  in  the  speech, 
with  many  others,  and  the  sound  of  the  speech 
was  made  more  emphatic  by  the  answers  which 
I  gave  to  questions  from  the  members  of  the  legis- 
lature before  whom  the  hearing  was  given.  The 
New  York  Sun  opposes  direct  nominations.  Its 
idea  of  journaUstic  ethics  was  to  print,  on  two 
separate  occasions,  the  statement  that  I  wrote  a 
long  and  violent  speech  which  I  was  afterward 
afraid  to  deliver.  This  slight  incident  is  an  example 
of  what  goes  on  with  discouraging  frequency.  In 
some  instances  interviews  are  forged  entire.  Not 
all  the  distortion  or  suppressr6n  of  views,  however, 
is  so  flagrantly  wrong  in  motive.  There  are  cases, 
fairly  numerous,  where  the  papers  suppress  news 
from  a  genuine,  although  mistaken,  view  of  duty. 
When  yellow  fever  existed  in  the  South,  certain 
newspapers  thought  it  helpful  and  patriotic  to  he 
about  it;  and  the  same  position  was  taken  by  vari- 
ous Pacific  coast  papers  at  the  time  of  the  bubonic 
plague.  Papers  in  New  York  and  elsewhere  have 
frequently  misrepresented  industrial  conditions  in 
order  to  give  prosperity  a  boost.  The  mistake  of 
these  newspapers  is  in  looking  upon  themselves  as 
the  protectors  of  limited  business  interests,  instead 
of  as  trustees  for  the  whole  people.  It  is  a  safe 
rule  to  trust  the  truth  when  the  danger  that  threatens 
is  merely  a  money  loss.  Of  course  there  are  cer- 
tain things  which  are  true  which  ought  not  to  be 


!l 


w 

w 


\  \ 


-*\ 


V 


•A 


I 


4  JOURNALISM 

exploited,  but  they  are  of  an  entirely  different  class; 
they  are  the  ugly,  demoralizing  facts  of  life  — 
crime,  and  vice,  and  dissipation,  which  are  popular, 
but  popular  through  their  appeal,  not  to  anything 
good  in  man,  but  to  his  most  wide-spread  weak- 
nesses. There  is  also  a  suppression  of  the  truth 
/which  is  sometimes  brought  about  by  the  very 
concrete  appeal  of  individual  large  advertisers. 
This  suppression  can  be  accomplished  more  often 
by  the  big  department  stores  than  by  any  other 
interest,  because  of  the  very  large  amount  of  space 
they  use.  Generally,  it  has  been  private  facts  they 
have  suppressed;  but  frequently,  some  needed  in- 
vestigation—let us  say  into  the  welfare  of  shop 
girls,  or  some  light  on  the  way  the  tariff  regulations 

are  enforced. 

In  the  same  group  of  inaccurate  statements  come 
a  large  number  of  pieces  of  gossip,  which  may  not 
perhaps  be  injurious  to  the  individual  mentioned, 
but  are  lamentable  because  they  encourage  in  the 
public  carelessness  about  accuracy.  We  will  sup- 
pose that  a  President's  daughter  is  reported,  in  large 
type,  to  be  engaged  one  day,  and  the  next  day  the 
story  is  denied.  Newspapers,  from  the  temptation 
"-to  make  their  columns  interesting,  too  often  play 
up  mere  rumors,  even  when  they  realize  the  probable 
untruthfulness,  with  the  same  emphasis  they  would 
play  up  the  fact  if  it  were  really  ascertained.  One 
respect  in  which  the  ethics  of  journalism  badly 
need   improvement   is    in    recognizing    the   proper 


JOURNALISM 


I 


Una  between  privacy  and  publicity.^  Most  of  them, 
even  of  the  better  class,  print  much  gossip  that 
has  nothing  of  the  proper  quality  of  news.  The 
yellow  papers,  with  their  vaunted  Democracy, 
dote  upon  details  in  the  private  life  of  the  con- 
spicuous  and  rich,  and  most  of  the  sober  papers  [  / 
regularly  maintain  society  columns.  Any  news-  ' 
paper  which  should  undertake  to  ignore  all  these  •  f 
private  matters  would  accept  a  great  obstacle  to 
large  circulation.  This  position  is  taken  by  a  few 
newspapers  already,  but  they  are  not  papers  of 
much  popularity,  and  the  reform,  while  it  is  one  to 
work  for,  will  undoubtedly  be  slow  in  accomplish- 
ment. We  can  work  for  greater  accuracy  with 
more  hope  than  we  can  at  present  work  for  elimina- 
tion of  the  private  and  the  frivolous.  The  yellow 
papers  are  the  greater  although  by  no  means  the 
only  sinners  in  this  field.  In  matters  of  higher 
importance  we  come  to  a  place  where  there  is  a 
sharper  parting  of  the  ways  between  the  conserva- 
tive and  the  yellow  press.  At  the  time  of  the 
Spanish  War,  a  conspicuous  New  York  paper  pub- 
Ushed  a  statement  that  the  Seventh  Regiment  of 
New  York  had  taken  Havana.  A  friend  of  mine 
asked  the  editor  how  he  was  led  to  beheve  this  had 
been  done.  ''We  had  no  reason,''  he  said,  'Ho  believe 
Havana  had  been  taken  by  the  Seventh  Regiment, 
but  our  principal  rival  [he  named  the  paper]  had 
been  pounding  the  Seventh  Regiment,  and  w^e 
thought  it  good  policy  to  give  it  a  Uttle  credit.--- 


I 


I 


6  JOURNALISM 

This  editor,  and  the  owner  of  his  paper,  proceed 
upon  the  principle  that  you  may  tell  as  many  lies 

as  you  like  in  the  ne\vs colunin*^,  and  print  such  other 

degrading  material  as  you  choose,  provided  your 
editorial    columns   carefully   tell   the   people   they 
must  be  good.    There  are  degrees,  of  course,   in 
this  principle  of  throwing  the  blame  on  the  public, 
of  refusing  to  be  responsible  for  anything  so  long 
as  it  is  what  the  people  want.    Now,  the  people 
want   cocaine;   selling   it   to  them  is  a  profitable 
business.    Many  States,  however,  imprison  the  indi- 
viduals who,   in  this  way,  give  the  people  what 
they  want.     The  people  want  to  go  to  gambling 
houses  and  other  places  of  dissipation  more  than 
they  are  allowed  to.     They  willingly  support  lot- 
teries, but  lotteries  are  forbidden.     They  hke  quack 
doctors,    fraudulent    medicines,    get-rich-quick    de- 
vices, and  many  another  quackery,  yet  more  and 
more  these  things  are  regulated.     The  newspapers 
have  no  more  right  to  do  everything  that  is  popular 
than  a  business  man  has,  or  a  poUtician,  or  a  clergy- 
man. 

At  the  same  time  we  must  sincerely  recognize 
that  no  paper  can  be  entirely  independent  of  its 
environment.  WTien  I  was  speaking  at  the  Uni- 
versity of  Missouri  this  season,  somebody  in  the 
audience  asked  me  how  many  papers  there  were  in 
which  the  editorial  policy  was  entirely  independent 
of  the  business  poUcy,  and  I  answered  none  — 
none,  that  is,  if  you  emphasize  the  word  '^ entirely." 


JOURNALISM 


For  instance,  I  happen  to  be  of  the  opinion 
that  a  large  number  of  the  breakfast  foods  so  much 
advertised  are  inferior  to  good  old-fashioned  oat- 
meal, or  cornmeal  mush,  in  the  nourishment  to  be 
had  for  a  given  amount  of  money,  or  a  given  amount 
of  labor  by  the  stomach.  I  should  be  unwilling, 
however,  to  write  an  editorial,  picking  out  all  break- 
fast foods  of  which  I  disapproved,  and  advising 
people  not  to  use  them.  The  Uttle  good  that  might 
be  done  would  be  more  than  offset  by  the  tremendous 
loss  to  any  paper  which  might  carry  the  editorial, 
a  loss  which  would  probably  be  inflicted  on  it  imme- 
diately by  a  class  of  very  large  advertisers.  On 
the  other  hand,  no  amount  of  money  would  make 
a  conscientious  journalist  print  an  advertisement 
recommending  what  was  actually  wrong.  The  line 
is  drawn  between  fraud  and ^actual;  indisputable 
harmfulness  on  the  one  hand,  and  on  the  other 
hand,  the  mere  question  of  whether  the  buyer  is 
buying  wisely.  The  standard,  fortunately,  is  con- 
stantly being  raised.  Only  this  year  a  certain 
pubUcation,  for  the  first  time  in  its  history,  and,  I 
think,  for  the  first  time  in  the  history  of  journalism, 
sent  back  to  its  advertisers,  voluntarily,  a  large 
amount  of  money  because  its  circulation  last  year 
had  fallen  below  the  statement  which  it  had  given 
out.  Only  a  few  years  ago  the  same  publication 
threw  out  patent  medicine  advertising,  from  a  new 
realization  of  the  harm  that  patent  medicines 
were  doing,  and  of  the  fact  that  they  depended 


8 


JOURNALISM 


JOURNALISM 


9 


almost  entirely  on  the  press  for  existence.  Doubt- 
less, almost  every  succeeding  year  will  find  some 
similar  advance  in  the  general  standards  of  reputable 
papers.  Those  publications  which  lead,  ethically, 
to-day  will,  I  hope,  seem  undeveloped  as  we  look 
back  upon  them  ten  years  hence.  It  is  by  no  means 
always  easy,  however,  with  the  best  intentions,  to 
form  a  clear,  intellectual  conception  of  what  ought 
and  what  ought  not  to  be  admitted.  Let  us  take 
as  illustration  the  results  of  a  furtive  but  important 
industry.  There  exist  in  the  United  States  a  num- 
ber of  agencies  for  the  dissemination  of  special 
ideas  under  the  guise  of  news.  These  news  bureaus 
can  be  employed  by  a  water  company,  for  instance, 
or  a  gas  company,  or  an  oil  company,  or  a  private 
individual,  to  send  out  material  to  newspapers  all 
over  the  country,  in  which  the  special  points  desired 
by  these  employers  are  mixed  up  with  real  news, 
and  thus  taken  by  the  reader  as  impartial  state- 
ments of  fact,  instead  of  as  the  special  pleading  of 
interested  persons.  This  is  wrong,  no  doubt,  but  is 
'  the  corporation  or  special  interest  to  have  no  hear- 
.  ing  before  the  pubUc!  In  attacking  this  'tainted 
^  news,"  as  it  is  called,  it  has  been  suggested 
that  the  proper  method  for  seeking  a  hearing  from 
the  public  is  for  the  corporation  to  state  its  own 
case  over  its  own  name,  using  if  necessary  the 
advertising  columns.  When  this  advice  is  followed, 
difficulties  arise  for  the  newspaper.  To  what  extent 
will  it  allow  in  its  advertising  columns  statements 


which  it  believes  to  be  erroneous  and  misleading? 
It  seems  to  me  that  a  Democratic  paper  ought  cer- 
tainly to  be  willing  to  publish  an  advertisement 
by  the  Republican  party,  provided  it  is  clearly 
marked  advertising;  or  by  the  Socialist  party;  or 
the  Prohibition  party.  x\lso  if  a  newspaper  ob- 
jected to  the  granting  of  a  certain  privilege  to  a 
certain  gas  company,  it  ought  to  allow  the  argu- 
ments of  the  gas  company  to  appear  in  its  adver- 
tising columns.  When  you  come  to  the  case  of  an 
insurance  company  offering  a  kind  of  policy  which 
a  newspaper  has  attacked,  you  approach  the  line 
of  difficulty;  and,  of  course,  the  general  rule  against 
anything  fraudulent  or  immoral  will  account  for 
a  large  part  of  the  exclusions.  It  will  never  be 
entirely  easy,  however,  to  settle  a  considerable  num- 
ber of  the  cases,  because  it  will  not  be  perfectly 
obvious  where  the  line  is  drawn  between  the  honest 
contention,  which  ought  to  be  given  a  hearing,  and 
a  statement  which  is  so  misleading  and  unfounded 
that  a  newspaper  ought  not  to  publish  it.  One 
criticism  of  this  duty  of  a  newspaper  to  allow  its 
opponents  to  buy  space  and  state  their  views  is, 
that  it  is  presenting  for  money  a  position  that  it 
refuses  to  allow  free  in  its  news  or  correspondence. 
This  objection,  however,  although  plausible,  is 
unsound.  We  are  dealing  with  a  wide-spread  method 
of  reaching  public  opinion,  and  we  are  asking  cor- 
porate and  other  interests  to  spend  their  money 
for  honest  statements  of  their  position,  rather  than 


J^ 


«1 


10 


JOURNALISM 


for  statements  disguised  and  put  out  without  tlieir 
names.  It  would  certainly  be  impractical  to  expect 
newspapers  to  print  every  side  of  every  question 
at  their  own  expense.  They  would  soon  have  space 
for  nothing  else.  They  often  do  print  both  sides 
of  a  question  when  they  think  both  sides  ought 
to  be  considered  by  their  readers,  or  are  strongly 
desired  by  their  readers.  When  some  person  says 
^'We  don't  agree  with  you;  we  think  our  side  ought 
to  have  further  hearing,"  it  is  fair  enough  to  refer 
that  person,  especially  if  he  is  one  with  a  business 

VV-nnterest  to  sustain,  to  the  advertising  columns. 

\  ^  In  this  connection  may  be  considered  the  tendency 
of  periodicals  toward  guaranteeing  the  truthfulness 
of  their  advertising.  Most  of  the  guarantees  thus 
far  have  been  mere  baits,  not  put  forward  in  good 
faith;  but  there  are  genuine  guarantees,  and  will 
be  more.  Such  guarantees,  however,  do  not  of 
course  mean  the  publication  agrees  in  all  the 
estimates  which  the  advertisers  put  on  the  value 
of  their  products.  All  the  pubUsher  does  is  to 
guarantee  that  nothing  appears  which  can  fairly 
)e  called  fraudulent.  Such  a  position  eliminates  a 
large  element  of  the  financial  advertising  which  is 
everywhere  so  rife  at  present.  This  financial  adver- 
tising is  one  of  the  departments  in  which  the  papers 
illegitimately  make  the  largest  amount  of  money. 
Patent  medicines  and  quack  doctors  represent 
another  part.  There  is  a  third,  which  is  diminish- 
ing,  but  still  flagrant  in  some  papers,  the  so-called 


JOURNALISM  11 

"personal,*'  which  conceals  appeals  obviously  vi-  J 
cious.     A  prominent  paper  was  not  long  ago  fined 
$25,000  for  this  sort  of  pubUcation,  and  altogether  n\ 
lost   indecent   advertising   estimated  at  $80,000  a    \\ 
year.     Notable  offenders  at  present  are  two  news- 
papers owned  by  a  man  very  conspicuous  in  pohti- 
cal  and  social  life;  but  I  beheve  this  man  is  about  *  ^ 
to  yield  to  necessity  and  omit  this  advertising. 

Certain  kinds  of  advertising  are  being  cut  from 
many  publications,  not  because  of  the  conscience 
of  the  editors,  but  because  of  the  opinions  of  the 
readers.  Liquor  advertising,  for  instance,  has  been  \\ 
thrown  out  in  cases  where  the  editors  and  publishers 
did  not  reach  the  conclusion  that  it  was  wrong  for 
the  various  brands  to  advertise  themselves.  They 
were  not  convinced  that  such  advertising  increased 
the  drinking  habit,  but  their  readers  were  indignant 
and  the  advertising  therefore  simply  did  not  pay., 
A  similar  reason  has  excluded  cigarettes  from  pub- 
lications where  the  men  responsible  did  not  believe 
that  any  boys  were  led  into  the  cigarette  habit 
by  what  they  read  in  newspapers  and  magazines. 
Sometimes  a  persistent  class  of  readers  will  make 
an  assault  along  such  Unes  with  energy  but  insuffi- 
cient numbers.  There  are  devotees  of  peace  who 
object  to  advertising  firearms.  Firearms  are  neces- 
sary in  the  present  state  of  the  world,  and  the  fight- 
ing habit  is  not  to  any  degree  at  all  appreciable 
kept  up  by  advertisements.  Sometimes,  perhaps, 
people  who  carry  their  arguments  to  such  a  fine 


'x 

■  x, 

^'^ 


10 


JOURNALISM 


for  statements  disguised  and  put  out  without  their 
names.  It  would  certainly  be  impractical  to  expect 
newspapers  to  print  every  side  of  every  question 
at  their  own  expense.  They  would  soon  have  space 
for  nothing  else.  They  often  do  print  both  sides 
of  a  question  when  they  think  both  sides  ought 
to  be  considered  by  their  readers,  or  are  strongly 
desired  by  their  readers.  When  some  person  says 
''We  don't  agree  with  you;  we  think  our  side  ought 
to  have  further  hearing/'  it  is  fair  enough  to  refer 
that  person,  especially  if  he  is  one  with  a  business 

T  Y  interest  to  sustain,  to  the  advertising  columns. 

\  ^  In  this  connection  may  be  considered  the  tendency 
of  periodicals  toward  guaranteeing  the  truthfulness 
of  their  advertising.  Most  of  the  guarantees  thus 
far  have  been  mere  baits,  not  put  forward  in  good 
faith;  but  there  are  genuine  guarantees,  and  will 
be  more.  Such  guarantees,  however,  do  not  of 
course  mean  the  publication  agrees  in  all  the 
estimates  which  the  advertisers  put  on  the  value 
of  their  products.  All  the  publisher  does  is  to 
guarantee  that  nothing  appears  which  can  fairly 
►e  called  fraudulent.  Such  a  position  eliminates  a 
large  element  of  the  financial  advertising  which  is 
everywhere  so  rife  at  present.  This  financial  adver- 
tising is  one  of  the  departments  in  which  the  papers 
illegitimately  make  the  largest  amount  of  money. 
Patent  medicines  and  quack  doctors  represent 
another  part.  There  is  a  tliird,  which  is  diminish- 
ing, but  still  flagrant  in  some  papers,  the  so-called 


JOURNALISM  11 

"personal,"  which  conceals  appeals  obviously  vi-  \/ 
cious.     A  prominent  paper  was  not  long  ago  fined 
$25,000  for  this  sort  of  pubUcation,  and  altogether  n 
lost   indecent   advertising   estimated  at   $80,000  a    \ 
year.     Notable  offenders  at  present  are  two  news- 
papers owned  by  a  man  very  conspicuous  in  pohti- 
cal  and  social  life;  but  I  believe  this  man  is  about  "^  1 
to  yield  to  necessity  and  omit  this  advertising. 

Certain  kinds  of  advertising  are  being  cut  from 
many  publications,  not  because  of  the  conscience 
of  the  editors,  but  because  of  the  opinions  of  the 
readers.  Liquor  advertising,  for  instance,  has  been 
thrown  out  in  caies  where  the  editors  and  pubhshers 
did  not  reach  the  conclusion  that  it  was  wrong  for 
the  various  brands  to  advertise  themselves.  They 
were  not  convinced  that  such  advertising  increased 
the  drinking  habit,  but  their  readers  were  indignant 
and  the  advertising  therefore  simply  did  not  pay. 
A  similar  reason  has  excluded  cigarettes  from  pub- 
hcations  where  the  men  responsible  did  not  beheve 
that  any  boys  were  led  into  the  cigarette  habit 
by  what  they  read  in  newspapers  and  magazines. 
Sometimes  a  persistent  class  of  readers  will  make 
an  assault  along  such  lines  with  energy  but  insuffi- 
cient numbers.  There  are  devotees  of  peace  who 
object  to  advertising  firearms.  Firearms  are  neces- 
sary in  the  present  state  of  the  world,  and  the  fight- 
ing habit  is  not  to  any  degree  at  all  appreciable 
kept  up  by  advertisements.  Sometimes,  perhaps, 
people  who  carry  their  arguments  to  such  a  fine 


■"V 


'\ 


12 


JOURNALISM 


point  cause  reactions  through  their  unreasonable- 
ness. 

A  recent  incident  will  illustrate  the  truth  that  a 

higher  standard  of  ethics  is  becoming  more  dominant 
in  the  publishing  field.  One  of  the  writers  for  a 
certain  publication  came  to  the  proprietor  recently 
and  pointed  out  that  a  firm  of  advertisers  was  quo- 
ting from  one  of  the  articles  printed  in  that  publica- 
tion, and  quoting  it  in  so  mangled  a  way  as  to  give 
an  entirely  false  impression.  The  pubUsher^s  first 
intention  was  to  punish  the  advertising  firm  at 
law,  for  forgery.  He  discovered,  however,  that  the 
firm  had  "since  ceased  to  advertise  in  his  paper,  and 
he  then  realized  that  if  he  took  any  action  it  might 
be  looked  upon  as  an  attempt  to  force  back  the  busi- 
ness of  the  delinquent  firm.  He  therefore  refrained 
from  this  step,  which  he  would  have  taken  had  it 
been  open  to  no  false  interpretation.  Such  genu- 
inely enlightened  standards  of  action  have  increased 
materially  in  the  fifteen  years  during  which  I  have 
been  more  or  less  familiar  with  the  newspaper  and 
magazine  field. 

One  of  the  ethical  changes  which  have  taken 
place  of  recent  years  bears  on  the  attitude  a  journal- 
ist should  take  toward  his  own  profession.  There 
used  to  be  an  idea  that  all  journalists  should  stand 
\\  by  all  other  journalists.  A  newspaper  might  expose 
anything  it  liked,  so  long  as  it  did  not  expose  another 
paper.  Such  criticism  was  called  fouling  one^s 
own   nest,    with    the   obvious   implication    that    it 


JOURNALISM 


13 


would  be  better  to  foul  the  nest  of  some  one  else. 
An  idea  has  started  now,  and  is  likely  to  grow,  that 
there  is  on  the  newspapers  no  clearer  duty  at  present 
than  the  duty  of  lessening  their  own  faults,  and  the 
duty  of  raising  their  own  standards,  and  these  ends 
can  be  reached  largely  by  tolerant  but  at  the  same  Vji' 
time  severe  professional  criticism  of  one  another.     >^ 

Another  respect  in  which  the  ethics  of  journalism 
have  in  recent  years  markedly  improved  is  in 
freedom  of  thought,  as  between  political  parties.}^ 
Twenty  years  ago  a  paper  was  Republican  or 
Democratic,  and  every  measure  before  the  pubUc 
was  judged  from  a  partisan  standpoint.  These 
mere  mouthpieces  are  becoming  fewer  every  day. 
The  average  paper  thinks  for  itself.  The  effect  on 
the  general  intellectual  competence  of  the  people 
of  this  increase  in  open-mindedness  would  not 
easily  be  overestimated. 

For  this  advance  we  must  give  considerable  credit 
to  '' yellow  journalism.''  The  faults  of  these  news- 
papers are  obvious  and  serious.  Their  merits  and 
accomplishments  are  not  always  so  clearly  seen  by 
the  ''respectable''  and  property-owning  classes.  In 
the  past,  the  masses  had  no  newspaper  organs.^ 
These  papers,  which  set  out  to  acquire  vast  circu- 
lations by  appealing  to  the  largest  numbers  in  the 
community,  have  used  many  wrong  methods  of 
seeking  popularity.  They  have  abandoned  truth, 
proportion,  taste.  Their  tone  is  often  one  to  poison 
the   air,    to   pervert   the   minds   of   readers.     The 


14 


JOURNALISM 


JOURNALISM 


15 


picture  they  present  of  the  world  is  ugly  and  demor- 
alizing.    They  have,  however,  done  good,  in  under- 
mining class  prejudices  and  narrow  interests.   Tliey 
have  been  independent,  not  only  of  party,  but  of 
specially    limited    influences.    They    have    largely 
destroyed  the  false  conserv^atism  which  is  merely 
ihe  selfishness  of  property.     They  have  forced  con- 
servative newspapers  to  be  much  more  liberal  and 
progressive.     At  the  same  time,  the  yellow  papers 
are  "themselves  becoming  more  responsible,  and  less 
loud  and  reckless,  partly  because  the  people  are 
becoming  educated,  but  largely  because  a  one-cent 
newspaper  cannot  pay  except  through  its  adver- 
tising,  and  the  best  class  of  advertisers  will  not 
patronize  a  paper  which  does  not  have  a  class  of 
readers  who  can  afford  to  buy  articles  of  some  value. 
We  therefore  see,  every  day  in  the  United  States, 
the  conservative  papers  becoming  less  hide-bound, 
and  the  yellow  papers  becoming  less  outrageous. 

The  standards  of  journaUsm  have  also  been 
raised  by  the  influx  of  educated  men,  and  this  state- 
ment may  be  made  without  forgetting  the  fact  that 
Vrc.  Hearst  comes  from  Harvard.  Twenty  years 
ago,  college  men  were  looked  upon  with  suspicion. 
To-day  it  is  difficult  to  secure  a  position  on  a  metro- 
politan daily  without  a  university  education.  This 
method  of  recruiting  for  all  journalistic  positions, 
from  reporter  to  editor-in-chief,  ought  to  have  a 
decided  influence  toward  checking  the  more  reck- 
less tendencies  of  newspapers,  and  toward  giving 


# 


them  a  large  outlook  on  matters  of  the  moment. 
The  American  people  are  eager  to  be  guided.  They 
have  an  instinctive  wish  to  see  things  from  high 
aspects.  Nothing,  therefore,  is  required,  except 
ability,  for  men  who  conduct  newspapers  to  put 
into  them  their  best  ideals,  and  at  the  same  time 
receive  favorable  hearing  from  the  public. 


:iii 


ACCOUNTANCY 


A    Lecture  Delivered  before   The  Sheffield  Scientific 
School  of  Yale  University,  May  6,  1909 

BY  J.    E.    STERRETT,    C.  P.  A. 

In  considering  the  ethics  of  any  particular  busi- 
ness or  profession  the  natural  course  would  seem 
to  be  first  to  determine  what  special  problems, 
arising  in  conducting  it,  are  likely  to  give  occasion 
to  ethical  questions  not  common  to  all  business 
or  to  all  walks  of  life.  In  the  present  imperfect 
state  of  commercial  morality,  however,  there  is  a 
further  inquiry  as  to  w^hat  standard  of  ethics  we 
may  fairly  apply  to  the  profession  as  a  whole  when 
questions  arise,  and  the  answer  depends  upon  how 
high  are  the  aims  of  the  profession  and  the  quali- 
fications of  its  members. 

In  an  ideal  state  all  useful  labor  would  be  equally 
honorable  and  the  same  ethical  standards  would  be 
set  for  all  men.  To-day,  however,  we  recognize 
that  thovse  worthily  engaged  in  some  occupations 
are  necessarily  endowed  with  greater  mental  gifts 
or  greater  responsibiUty  than  is  called  for  in  other 
occupations,  and  may  therefore  justly  be  held  to  a 
higher  standard.     We  expect  a  judge  or  a  physician 

16 


ACCOUNTANCY 


17 


to  aim  higher  in  his  ideals  than  a  coal  heaver  or  a 
street  cleaner. 

In  discussing  these  questions  in  relation  to  the 
older  professions  much  might  be  taken  for  granted, 
but  of  the  new  or  business  professions,  which  have 
developed  as  a  result  of  the  commercial  growth 
during  recent  years,  accountancy  is  perhaps  the 
youngest  and  least  understood.  It  seems  necessary, 
therefore,  in  connection  with  the  subject  of  the 
Ethics  of  Accountancy  to  discuss  at  some  length 
the  questions.  What  is  accountancy?  Is  it  a  pro- 
fession serving  a  real  public  purpose?  Does  its 
proper  conduct  call  for  a  high  order  of  ability  and 
efficiency?  and  may  we  fairly  impose  a  high  standard 
of  ethics  upon  its  members? 

The  modern  concept  of  business  differs  radically 
from  that  in  the  days  when  business  was  connected 
but  loosely  and  consisted  mainly  of  barter.  In  like 
manner  the  methods  of  business  administration 
and  control  have  changed.  Once  business  was  in- 
dividual, every  man  for  himself,  now  it  is  specialized 
and  representative.  The  stockholders  of  many  of 
our  great  corporations  would,  if  brought  together, 
form  a  large  city,  and  Uke  a  city  they  are  organized 
and  governed  upon  a  representative  basis.  Many 
of  these  stockholders  seldom  or  perhaps  never  see 
the  property  in  which  their  funds  are  invested,  but 
their  interests  are  none  the  less  vital.  In  this  age 
of  specialization  the  welfare  of  the  community  and 
the  happiness  of  the  individual  are  enhanced  by 


/' 


lo 


ACCOUNTANCY 


this  representative  form  of  business  administration 
which  allows  the  chemist  to  pursue  his  chemistry 
and  the  financier  his  finance,  each  man  following 
the  course  indicated  by  his  peculiar  talents  and  each 
secure  in  the  thought  that  his  other  important 
though  collateral  interests  are  in  the  care  of  men 
specially  quaUfied  for  their  various  trusts.  It  is 
upon  this  principle  of  cooperation  and  specialization 
that  our  modern  social  structure  is  founded,  and  the 
successful  outworking  of  this  plan  is  mainly  limited 
by  two  considerations  —  the  knowledge  necessary 
for  effective  control  upon  the  part  of  administrators 
in  whatever  capacity,  and  dishonesty  or  that  care- 
less ignorance  that  is  akin  to  dishonesty. 

The  profitable  maintenance  of  business,  and  still 
more  its  development  and  expansion,  are  dependent 
upon  effective  control,  and  there  is  a  fast  growing 
recognition  of  the  fact  that  control  in  the  final 
analysis  is  largely  a  problem  of  good  accounting. 
Again  profits  may  be  earned  and  yet  those  interested 
therein  fail  to  share  in  equitable  proportions. 
Through  moral  obUquity  or  through  ignorance 
those  in  control  may,  and  as  we  all  know  sometimes 
do,  fail  in  their  treatment  of  investors.  It  is  the 
twofold  function  of  accountancy  to  assist  in  the 
extension  of  business  and  the  increase  of  profits 
and  to  ensure  the  full  and  fair  statement  of  financial 
position  and  operating  results. 

It  is  the  peculiar  province  of  the  accountant  to 
act  at  once  as  a  counselor  and  a  judge.    While  he 


f 


ACCOUNTANCY 


19 


can  never  assume  a  superiority  to  legally  established 
judicial  procedure,  it  is  nevertheless  true  that  he 
often  acts  in  a  judicial  capacity  in  circumstances 
under  which  the  law  courts  could  provide  no  effect- 
ive remedy,  and  even  in  matters  before  the  courts, 
involving  questions  as  to  business  facts  and  practice, 
the  judgment  of  the  accountant  is  often  a  deter- 
mining factor. 

As  we  study  some  of  the  problems  that  face  the 
accountant  in  the  practice  of  his  profession  we  will 
find  that  more  is  required  than  mere  skill.  To 
properly  discharge  his  duties  he  needs  a  cultivated 
mind  and  a  well-developed  sense  of  justice,  as  well 
as  a  fund  of  knowledge  covering  a  wide  range  of 
business,  economic,  legal,  and  accounting  subjects. 
Moreover,  having  all  these,  his  success  in  his  call- 
ing will  depend  upon  the  measure  of  his  tact  and 
common  sense. 

The  relations  sustained  by  a  professional  man 
toward  his  associates  in  the  same  calling  are  worthy 
of  a  careful  study  from  an  ethical  standpoint,  but  as 
it  is  a  topic  of  more  especial  interest  to  those  in  or 
about  to  engage  in  practice  we  will  pause  only  to 
note  that  the  good  opinion  of  one's  professional 
brethren  is  a  most  desirable  possession  and  one 
worthy  of  careful  cultivation.  As  a  general  rule 
the  professional  man  who  does  not  command  the 
confidence  of  his  colleagues  does  not  deserve  the 
confidence  of  the  public.  The  jealousies  engendered 
in  an  active  practice,  and  rivalries  for  place  and 


I 


ll 

# 


20 


ACCOUNTANCY 


power,  occasionally  becloud  unjustly  the  reputation 
of  a  man,  but  if  he  is  of  sterling  worth  the  consensus 
of  opinion  in  his  own  profession  will  not  long  con- 
tinue to  run  against  him.  Every  accountant  then 
should  strive  to  acquire  and  retain  in  the  largest 
measure  the  confidence  and  esteem  of  his  fellow- 
accountants.  Practices  that  estrange  his  associates 
are  almost  certain  to  be  unworthy,  and  if  they  are 
unworthy,  even  though  temporarily  successful,  they 
will  not  long  deceive  the  pubUc,  and  worse  than  all 
else  will  react  upon  the  man's  own  character. 

In  considering  next  the  relations  between  the 
accountant  and  his  client  emphasis  must  first  be 
laid  upon  the  utmost  candor  and  good  faith.  These 
qualities  are  obviously  essential  to  fair  dealing  in 
all  relations  of  life,  but  it  must  be  remembered  that 
the  degree  of  good  faith  required  of  a  professional 
man  is  necessarily  higher  than  that  demanded  in 
other  occupations.  For  instance,  I  visit  an  oculist 
who  examines  my  eyes  and  tells  me  that  the  glasses 
I  am  now  wearing  meet  every  requirement.  Clearly 
his  profit  is  less  than  it  would  be  if  he  advised  me 
to  come  again  for  further  examination  and  a  pre- 
scription for  new  glasses.  Next  I  enter  a  clothing 
store.  Does  the  salesman  there  advise  against  a. 
purchase  on  the  ground  that  the  clothes  I  am  wear- 
ing are  in  good  condition?  Not  at  all.  He  must 
not  misrepresent  the  goods  he  has  to  sell,  but  his 
duty  is  to  sell  to  those  who  are  wiUing  or  who  may 
be  persuaded  to  buy.     It  is  quite  evident  that  the 


ACCOUNTANCY 


21 


same  rule  does  not  hold  good  in  the  case  of  the 
oculist.  His  duty  is  not  to  induce  men  to  w^ear 
glasses  or  to  change  those  they  are  wearing  even 
though  to  do  so  is  directly  to  his  immediate  personal 
advantage.  On  the  contrary  the  oculist  must  sink 
all  motives  looking  to  present  gain  and  content 
himself  on  the  pecuniary  side  of  the  transaction 
with  the  hope  of  future  income  that  may  result 
from  increased  practice  accruing  to  him  through 
an  established  reputation  for  fair  dealing. 

In  all  professional  work,  and  in  none  more  than 
in  accountancy,  the  client  must  rely  upon  the  coun-  \ 
sel  that  he  seeks,  and  the  safeguards  upon  which  \ 
he  must  depend  to  protect  him  from  the  selfishness 
and  even  the  cupidity  of  his  adviser  are  the  ethical 
standards  of  the  profession  and  the  personal  charac- 
ter of  the  individual.  The  rule  of  conduct  that 
requires  us  to  maintain  the  same  attitude  toward 
the  rights  of  others  that  we  demand  for  our  own, 
finds  no  broader  application  than  is  laid  upon  the 
members  of  the  several  professions.  Nor  must  this 
requirement  be  met  in  any  but  the  frankest  and 
fullest  manner.  It  is  not  a  counsel  of  benevolence 
but  one  of  justice,  that  requires  not  only  an  adequate 
consideration  of  others,  but  that  this  consideration 
be  extended  in  courtesy  and  kindliness  of  manner. 

In  all  his  dealings  with  his  cHents  the  accountant 
must  realize  that  he  is  for  the  moment  at  least  the 
custodian  of  the  cUent's  interests,  involving  in 
many  instances  not  only  his  goods  but  his  honor 


I...-  »  'X.  *  "..  t.   ^ 


I 


99 


ACCOUNTANCY 


ACCOUNTANCY 


23 


I 


as  well.  This  trusteeship  is  frequently  a  task  of 
difficulty  and  of  delicacy.  The  client  may  be 
actuated  by  unworthy  motives,  he  may  be  swayed 
by  prejudice  or  by  fear  and  may  wish  to  evade 
responsibility  or  avoid  an  issue,  and  to  these  the 
accountant  must  not  lend  himself,  but  must  with 
candor  and  tact  endeavor  to  persuade  the  client 

into  a  right  course. 

Industry  and  appUcation  are  two  qualities  that 
every  client  has  a  right  to  expect.  If  the  accountant 
has  engagements  that  for  any  reason  interfere  he 
should  frankly  state  that  he  is  unable  to  accept 
instructions  in  the  new  matter,  but  once  an  engage- 
ment is  accepted  it  must  be  prosecuted  with  all 
diligence  and  fidelity.  In  passing  it  may  be  well 
to  pause  for  a  moment  to  outline  briefly  the  organi- 
zation of  an  accountant's  office  in  order  to  better 
understand  the  application  of  the  rule  of  conduct 
now  under  discussion. 

Accountancy  belongs  to  that  class  of  professions 
that  require  a  somewhat  extensive  organization 
containing  individuals  of  varying  degrees  of  skill 
and  experience.  Other  instances  are  found  in  the 
professions  of  engineering,  architecture,  and  to  some 
extent  in  law.  In  a  relatively  small  practice  the 
accountant's  organization  will  usually  be  found  to 
consist  of  one  or  two  members  of  the  firm  who  may 
be  spoken  of  as  principals,  with  a  staff  of  say  a 
dozen  assistant  accountants  and  one  or  two  stenog- 
raphers, while  in  the  larger  organizations  there  are 


usually  four  and  often  more  principals,  with  staffs 
containing  some  men  of  a  very  high  order  of  abiUty, 
and  others  grading  down  to  what  are  known  as 
^^  junior  assistants,''  and  altogether  numbering  from 
fifty  to  two  hundred  or  in  some  cases  even  more. 
Usually  these  large  organizations  are  not  maintained 
at  any  one  point  but  are  divided  among  several 
offices  of  the  same  firm  in  different  cities.  These 
complicated  organizations  are  necessary  for  the 
conduct  of  a  large  practice,  but  they  add  many 
difficult  problems  to  the  burden  of  the  principals 

of  the  firm. 

There  are  of  course  many  individual  practitioners 
and  many  small  firms  in  which  the  attention  of  a 
principal  is  given  to  all  the  details  of  every  case 
coming  into  the  office,  but  necessarily  such  cases 
must  be  small  or  at  any  rate  exceptional.  In  a 
large  office  there  is  a  danger  that  too  much  may  be 
left  to  the  judgment  of  an  assistant  who,  while  fully 
competent  up  to  a  certain  point,  is  hable  if  left  to 
himself  beyond  this  point  to  jeopardize  the  interests 
of  the  client  and  the  reputation  of  his  firm. 

The  large  staffs  and  extended  organizations  found 
in  accountants'  offices  provide  a  means  for  a  divi- 
sion of  labor  but  not  for  a  division  of  responsibility. 
There  must  be  no  abatement  in  the  measure  of 
individual  responsibility  resting  upon  the  principals. 
They  may  use  assistants,  but  for  the  work  of  these 
the  principal  is  just  as  responsible  to  the  client  as  he 
is  for  work  personally  performed.    The  client  is 


yum' 


24 


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ACCOUNTANCY 


25 


entitled  to  the  accountant's  utmost  learning  and 
ability  and  any  use  of  assistants  that  interferes  with 
this  right  must  be  avoided,  while  on  the  other  hand 
w^ork  that  can  as  well  be  performed  by  an  assistant 
should  not  ordinarily  be  done  by  a  principal  because 
of  the  increased  cost  to  the  cUent.  Whether  the 
office  is  conducting  a  large  practice  or  a  small  one, 
and  whether  the  case  is  one  requiring  the  use  of 
many  assistants  or  of  none,  the  rule  to  be  followed 
in  all  cases  is  one  of  full  responsibility  and  entire 
fideUtv. 

In  all  professions  there  is  constant  danger  of  a 
failure  to  recognize  the  true  significance  of  things 
appearing  to  be  of  little  importance.  The  physi- 
cian makes  an  examination  and  diagnoses  a  com- 
mon cold  and  prescribes  accordingly,  failing  to  note 
the  early  symptoms  of  a  virulent  disease  that  may 
thus  unchecked  at  the  outset  exact  the  patient's 
life  as  its  toll.  A  lawyer  or  an  accountant  may 
accept  a  case,  but  because  of  its  seeming  lack  of 
importance  fail  to  give  it  careful  attention.  This 
is  not  honest,  and  whether  the  client  suffers  or  not 
the  reaction  upon  the  professional  man  is  certain; 
good  work  thereafter  is  less  easy,  and  a  tendency 
of  this  kind  is  soon  observed  by  others.  In  this 
connection  the  experience  of  every  successful  man 
show^s  that  connections  arising  through  matters 
seemingly  of  little  moment  are  often  the  most 
enduring  and  profitable.  Our  range  of  vision  is  too 
narrow  to  determine  the  ultimate  results  of  any 


action,  but  if  all  are  performed  in  uniform  good 
faith  and  with  a  nice  regard  for  the  interests  com- 
mitted to  our  keeping  they  will,  like  bread  cast 
upon  the  waters,  eventually  bring  their  reward. 

The  confidences  of  the  client  must  be  held  in- 
violable. The  accountant  is  the  repository  of  much 
knowledge  that  must  be  held  in  secrecy,  not  neces- 
sarily that  it  is  discreditable  to  the  client  (as  a 
matter  of  fact  it  seldom  is),  but  it  has  been  dis- 
closed to  the  accountant  in  confidence  and  he  has 
no  right  to  divulge  it  to  others  without  the  full 
knowledge  and  consent  of  the  cUent.  This  require- 
ment of  privacy  is  equally  obligatory  upon  the  part 
of  the  members  of  an  accountant's  staff,  and  to  the 
credit  of  these  men  it  may  be  said  that  ulterior  com- 
munications relative  to  a  cUent's  affairs  are  practi- 
cally unknown,  although  doubtless  there  have  been 
many  instances  when  a  strong  temptation  has  been 
insinuatingly  offered  to  an  accountant's  assistant 
to  induce  him  to  disclose  information  in  his  posses- 
sion or  available  to  him. 

In  order  to  safeguard  the  affairs  of  his  chents  an 
accountant  is  under  obUgations  to  maintain  a  filing 
department  in  which  to  keep  all  working  and  other 
papers  and  reports,  and  to  provide  that  access  to 
these  papers  is  limited  to  those  who  have  a  right 
to  examine  them. 

A  careful  guard  must  be  kept  by  both  principal 
and  assistant  against  questions  of  a  leading  nature 
relative  to  the  affairs  of  any  client  that  may  be  put 


26 


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ACCOUNTANCY 


27 


by  those  not  entitled  to  information.  Sometimes 
these  questions  emanate  from  another  client  in  the 
same  line  of  trade  who  wishes  to  know  about  his 
competitor.  Whatever  the  ultimate  purpose,  the 
questions  at  first  are  usually  of  such  a  nature  that 
there  may  seem  to  be  no  harm  in  answering  them, 
but  it  is  seldom  safe  to  do  so  as  an  answer  is  likely 
to  serve  as  an  invitation  to  further  questioning. 
A  tactful  changing  of  the  subject  w^ill  usually  be  a 
sufficient  indication  that  the  accountant  declines 
to  yield  to  importunity;  but  if  this  is  not  sufficient 
he  should  plainly  state  that  he  is  not  at  liberty  to 
discuss  his  client's  affairs. 

Another  phase  of  this  subject  that  is  the  cause 
of  some  concern  to  accountants  is  the  position  in 
which  an  accountant  is  placed  when  called  to  the 
witness  stand  by  another  than  his  client  and  asked 
to  testify  as  to  matters  of  fact  coming  within  his 
knowledge  through  confidential  professional  rela- 
tions. To  some  extent  other  professions  are  pro- 
tected and  can  plead  that  any  knowledge  possessed 
by  them  was  acquired  in  the  form  of  ''privileged 
communications."  But  as  yet  the  right  of  pro- 
tection to  communications  between  a  cUent  and  an 
accountant  has  not  been  granted  in  this  country 
by  statute,  and  w^iile  the  courts  would  probably 
be  loath  to  insist  that  a  professional  man  should 
violate  his  obligation  to  guard  the  secrets  of  his 
client,  it  is  altogether  possible  that  in  the  near 
future  some  judge   will    give  an    accountant   the 


i! I  'V 


choice  of  testifying  or  going  to  jail  in  contempt  of 
court. 

Unless  the  orders  of  the  court  are  exphcit  and 
the  accountant  is  convinced  that  a  proper  sense  of 
pubhc  duty  requires  him  to  testify,  he  should  refuse 
to  do  so  and  take  the  consequences,  however  unde- 
sirable. An  accountant's  responsibility  is  always 
to  be  measured  by  the  moral  standard  rather  than 
the  legal,  and  while  he  should  adopt  the  first  with- 
out any  coercion  arising  through  fear  of  the  penalties 
of  the  latter,  he  should  maintain  it  regardless  of 
any  consequences  growing  out  of  a  temporary  con- 
flict of  the  two. 

As  in  other  professions  the  question  of  compen- 
sation is  not  altogether  a  simple  matter.  Obviously 
the  interests  of  cHent  and  accountant  are  not  here 
the  same.  Both  are  subject  at  least  to  motives  of 
personal  interest  that  do  not  obtain  in  their  other 
relations.  Fortunately  both  must  be  fully  aware 
of  this  situation  and  thus  the  opportunity  for  the 
abuse  of  confidence  by  the  accountant,  were  he  so 
disposed,  is  to  a  large  extent  removed.  As  a  rule 
the  question  of  remuneration  is  settled  in  advance 
either  by  an  agreement  as  to  the  rate  or  by  naming 
a  fixed  fee.  The  matter  would  scarcely  require 
discussion  were  it  not  that  what  are  known  as  'jcon- 
tingent  fees"  — a  subject  of  long-standing  discus- 
sion among  the  members  of  the  legal  profession  — 
are  not  unknown  among  accountants.  And,  like 
the  lawyers,  accountants  are  not  fully  agreed  as  to 


28 


ACCOUNTANCY 


ACCOUNTANCY 


29 


the  attitude  to  be  adopted  toward  this  form  of 

compensation. 

In  some  instances  contingent  fees  would  seem  to 
be  almost  if  not  altogether  free  from  reasonable 
objection,   and    sometimes    it   would    appear    that 
justice  requires  an  arrangement  of  this  sort.     How- 
ever, we  are  not  discussing  exceptional  cases  and 
the  propriety  of  any  course  of  conduct  is  to  be  deter- 
mined upon  the  basis  of  the  consequences  arising 
from  its  general  adoption.     An  agreement  to  accept 
a  contingent  fee  at  once  changes  the  relations  that 
ordinarily  exist  between   the  accountant   and    his 
chent;  the  former  no  longer  maintains  an  attitude 
of    impartiahty  but  becomes  m  partner   with    his 
client.     Inasmuch    as    a   judicial    attitude    is    de- 
manded of  an  accountant  as  a  prime  condition  of 
his  profession,  he  should  not  without  grave  reason 
adopt  any  practice  that  makes  him  an  interested 
party  to  the  question  at  issue.     It  is  fair  to  consider 
that  as  a  lawyer,  who  is  professedly  an  advocate, 
is  Umited  strictly  in  the  acceptance  of  contingent 
fees,  the  hues  must  be  drawn  much  more  rigidly 
by  the  accountant  because  unlike  the  lawyer  his 
view-point   is  judicial.     Furthermore  a  contingent 
fee  is  frequently  an  unfair  one.     If  the  chances  for 
success  are  remote  the  accountant  throws  away  his 
time  and  his  talent,  while  if  success  is  reasonably 
sure  the  fee  is  likely  to  be  in  excess  of  the  value 
of  the  services  rendered.     It  is  one  thing  for  a  pro- 
fessional man  to  abate  his  charge  by  reason  of  the 


poverty  of  his  client,  and  this  is  often  done  in  all 
professions,  but  it  is  an  altogether  different  thing 
to  take  advantage  of  a  chent's  poverty  or  his  igno- 
rance to  secure  a  compensation  not  warranted  by  the 
services  rendered  or  the  responsibihty  assumed. 

An  eminent  judge  in  discussing  from  the  bench 
the  subject  of  contingent  fees  said:  ''It  is  not  a 
practice  to  be  generally  commended,  exposing 
honorable  men  not  unfrequently  to  misapprehen- 
sion and  iUiberal  remark,  and  giving  the  apparent 
sanction  of  their  example  to  conduct  which  they 
would  be  among  the  first  to  reprehend.'' 

It  would  be  an  unhappy  day  for  the  business 
coBomunity  that  saw  the  acceptance  of  contingent 
fees  generally  adopted  by  any  profession,  and 
accountants  in  particular  should  be  most  circum- 
spect in  this  matter.  If  they  are  asked  to  under- 
take a  case  upon  the  basis  of  a  contingent  fee  they 
should  never  agree  to  it  when  by  so  doing  their 
interests  are  brought  in  any  degree  in  conflict  with  ^ 
those  of  their  cUent  or  of  the  public. 

Another  duty  every  accountant  owes  to  his 
clients  is  that  of  constant  study  of  the  Hterature. 
of  his  profession.  Accounting  is  a  progressive 
science  and  constant  reading  and  study  are  required 
to  keep  abreast  of  it.  Then  again  any  man  who 
does  not  study  withers  up.  The  springs  of  our 
knowledge  must  be  replenished  from  without  if 
our  own  experiences  are  to  become  the  source  of 
sound  judgment.    No  one  man  can  have  a  personal 


30 


ACCOUNTANCY 


ACCOUNTANCY 


31 


experience  so  comprehensive  that  he  can  afford  to 
disregard  the  views  of  other  members  of  his  pro- 
fession, and  to  the  last  he  should  make  an  earnest 
effort  to  keep  in  close  touch  with  the  best  thought 
of  his  profession.  To  the  young  accountant  this 
thought  should  appeal  with  especial  force,  as  by 
this  means  he  can  best  equip  himself  for  the  task 
of  dealing  with  the  larger  questions  that  he  hopes 
will  arise  later  in  his  career. 

Incidentally  it  may  be  said  that  an  accountant 
should  not  confine  himself  to  the  literature  relating 
to  his  own  profession,  but  should  use  every  avail- 
able opportunity  to  cultivate  a  taste  for  the  best 
books  in  a  much  wider  range  of  reading.  No  better 
means  of  rational  enjoyment  can  be  found,  and  the 
reading  of  good  books  not  only  stimulates  the  mind 
to  a  more  able  discharge  of  the  duties  of  the  present, 
but  it  helps  to  postpone  the  day  when  mental  vigor 
becomes  impaired  through  advancing  years. 

In  perhaps  no  other  profession  do  relations  with 
clients  become  so  closely  intermingled  with  the 
interests  of  the  general  public,  and  any  treatment 
of  the  ethics  of  accountancy  is  inadequate  that 
fails  to  give  a  prominent  place  to  the  responsi- 
bilities of  the  accountant  to  the  public  in  the  dis- 
charge of  his  usual  and  ordinary  duties.  A  glance 
at  the  nature  of  a  few  of  the  leading  lines  of  an 
accountant's  activity  is  perhaps  necessary  to  show 
the  full  force  of  the  responsibility  resting  upon 
him. 


The  practice  of  having  an  independent  audit  of 
the  accounts  of  corporations  made  annually  or  more 
often  is  rapidly  growing  in  this  country  and  is 
obligatory  under  a  statutory  enactment  in  England. 
It  is  interesting  to  note  the  advanced  position 
taken  by  the  English  law  in  respect  to  accounts  and 
matters  more  or  less  closely  related  thereto,  such  as 
the  form  of  prospectus  that  must  be  used  in  offer- 
ing new  issues  of  securities  to  the  public;  but  as 
the  requirements  thereunder  add  only  to  the  legal 
requirements  laid  upon  the  accountant  and  increase 
little  if  at  all  his  moral  obligations,  a  discussion  of 
this  subject  is  not  within  our  present  purpose.  I 
would,  however,  commend  the  subject  to  your 
further  consideration.  Custom  usually  precedes 
legislative  enactments,  and  what  is  now  a  growing 
practice  in  America  will  probably  before  long  be 
made  obligatory. 

The  appointment  of  the  auditor  with  us  is  gener- 
ally made  by  the  officers  or  the  board  of  directors. 
In  Uke  manner  when  an  accountant  is  instructed 
to  investigate  the  accounts  of  a  company  and  report 
upon  its  earnings  during  a  period  of  years,  his 
instructions  usually  come  from  the  banker  who  is 
bringing  out  the  securities.  In  one  case  the  account- 
ant's report  and  certificate  are  addressed  to  the 
board  of  directors,  while  in  the  second  instance 
these  go  to  the  banker.  In  both  cases  the  account- 
ant's real  cHent  is  the  public  or  that  portion  of  it 
that  is  now,  or  may  be  in  the  future,  interested  in 


fl 


32 


ACCOUNTANCY 


ACCOUNTANCY 


33 


the  securities  of  the  concern  whose  accounts  are 

reported  upon. 

At  this  point  I  may  be  permitted  to  digress  for 
the  purpose  of  once  more  emphasizing  the  fact  that 
a  balance  sheet,  or  other  general  statement  of  the 
accounts  of  any  large  enterprise,  is  necessarily  to  a 
large  extent  an  expression  of  opinion.     To  those 
who  have  not  given  the  subject  any  extended  con- 
sideration a  balance  sheet  is  thought  to  be  merely 
an  expression  of  facts  the  ultimate  truth  of  which 
can    readily    be    determined    upon    investigation. 
Reflection,  however,  will  show  that  values  can  be 
finally  ascertained  only  upon  liquidation,  and  liqui- 
dation in  a  going  concern  is  as  impossible  as  it 
is  undesirable.     If,  then,  ft&  accountant's  certificate 
to  a  balance  sheet  or  a  profit  and  loss  account  is 
not  a  certificate  to  a  set  of  fully  determined  facts, 
but  is  rather  a  statement  of  his  opinion  as  to  a 
position  of  affairs  that  is  not  and  for  the  present 
cannot  be  entirely  disclosed,  we  see  that  the  respon- 
sibility assumed  is  vastly  increased,  and  to  meet 
this  responsibility  he  must  bring  to  bear  upon  the 
problem  a  range  of  talent  much  more  comprehen- 
sive than  would  be  necessary  if  accounts  were  in 
themselves   final    statements   of   fact.     Mere    skill 
is  not  suflScient  but  must  be  coupled  with  a  well- 
trained  sense  of  justice.    In  fact,  even  at  the  risk 
of  reiteration,  it  must  be  said  that  the  culture  of 
justice  is  the  accountant's  first  duty  and  in  it  all 
others  are  comprehended. 


4 


In  every  audit  and  in  every  examination  there 
are  possible  rights  of  some  present  or  future  stock- 
holders, or  other  investors,  that  will  be  affected 
whether  favorably  or  adversely  by  the  accountant's 
certificate  or  report,  and  the  rights  of  these  perhaps 
unknown  individuals  should  be  his  concern  quite 
as  much  as  the  rights  of  those  whom  he  may  regard 
r'^as  his  immediate  cUents.  The  adherence  to  this 
I  rule  may  result  in  a  conflict  of  opinion  between  the 
Y  accountant  and  the  management  of  a  company, 
^-^n  practice  such  differences  in  views  frequently 
develop  and  the  situation  then  ensuing  is  one  that 
requires  not  only  good  judgment  as  to  the  account- 
ing and  financial  questions  involved,  but  also  a  dis- 
play of  due  consideration  for  the  opinions  of  those 
who  have  in  charge  the  management  of  the  business. 
Unless  evidence  to  the  contrary  exists  it  is  to  be 
assumed  that  these  men  are  honest  in  their  views 
and  in  their  intentions.  To  be  sure  they  are  not 
disinterested,  but  on  the  other  hand  they  are  Ukely 
to  be  well  informed  upon  the  business  in  question 
and  the  branch  of  trade  to  which  it  belongs,  and 
moreover,  as  directors  they  are  clothed  with  a 
large  measure  of  discretionary  power. 

Under  such  circumstances  it  would  seem  that  the 
right  course  to  pursue  is  for  both  sides  to  calmly 
discuss  the  questions  at  issue  with  a  view  to  finding 
a  common  ground  u^pon  which  to  meet.  Such  an 
effort  can  scarcely  do  harm,  while  on  the  other 
hand  great  harm  to  all  the  interests  concerned  may 


34 


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ACCOUNTANCY 


35 


be  done  by  premature  opinions  expressed  by  the 
accountant.  For  the  very  reason  that  the  account- 
ant is  supposed  to  be  not  only  independent  but  in- 
telUgent  as  well,  an  injudicious  statement  made  by 
him,  or  an  unnecessary  reservation  or  qualification 
in  his  certificate,  may  work  an  injury  fully  as  great 
as  the  one  he  is  seeking  to  avoid  or  prevent.  At 
the  same  time  he  must  not  allow  another  to  become 
the  keeper  of  his  conscience.  His  own  judgment 
must  be  his  final  guide  in  writing  his  report  or  in 
framing  his  certificate.  While  giving  due  weight 
to  the  opinion  of  others  he  must  never  forget  that 
it  is  his  signature  that  is  to  be  aflSxed,  and  in  the 
event  of  criticism  he  cannot  plead  immunity  on  the 
ground  that  he  relied  upon  someone  else  for  knowl- 
edge that  should  have  been  his  own. 

If  after  thoughtful  consideration  of  all  the  cir- 
cumstances in  the  case  and  after  he  has  patiently 
satisfied  himself  as  to  every  essential  fact,  there 
still  exists  a  conviction  in  the  mind  of  the  account- 
ant that  is  opposed  to  the  views  of  the  management, 
the  accountant  must  tactfully  but  none  the  less 
firmly  maintain  his  ground  even  though  the  unme- 
diate  result  is  the  loss  of  a  valued  client.  When 
the  conditions  of  his  engagement  call  for  a  full 
report  upon  the  accounts  of  a  company  the  account- 
ant has  an  opportunity  to  state  his  views  in  full, 
giving  his  reasons  therefor;  but  when,  as  more  fre- 
quently happens,  he  is  desired  to  give  a  certificate 
attesting  to  the  accuracy  of  a  balance  sheet  or  a 


profit  and  loss  account,  it  is  his  duty  either  to  decUne 
to  give  any  certificate  where  the  accounts  are  in 
such  a  condition  that  he  cannot  honestly  do  so,  or 
to  make  such  qualifications  in  his  certificate  as  w411 
call  the  attention  of  the  careful  investor  to  the 
weakness  the  accountant  sees  in  the  accounts. 

Certificates  should  always  be  framed  in  simple 
language  and  in  hke  manner  any  qualifications 
therein  should  be  straightforward  and  to  the  point. 
At  the  same  time  it  is  necessary  to  avoid  over- 
shooting the  mark  and  the  accountant  should  weigh 
his  words  most  carefully  with  a  view  to  the  effect 
they  are  Ukely  to  produce  upon  the  mind  of  the 
investing  pubUc.  The  pubUc  is  hkely  to  attach 
perhaps  more  meaning  to  a  qualification  in  a  cer- 
tificate than  it  is  the  intention  of  the  accountant 
to  convey,  and  a  careless  use  of  words  has  more 
than  once  caused  unnecessary  alarm. 

Qualifications  in  a  certificate  are  scarcely  ever 
necessary  concerning  minor  matters,  at  least  so 
long  as  these  do  not  affect  the  substantial  truthful- 
ness of  the  accounts,  and  a  condition  or  an  amount 
that  will  impair  the  truthfulness  of  the  accounts 
in  a  small  business  may  have  no  practical  effect 
upon  the  accounts  of  a  large  enterprise.  The 
question  of  what  is  of  suflScient  importance  to 
require  a  qualification  in  a  certificate  becomes, 
aside  from  any  intrinsic  significance  in  the  item 
itself,  purely  a  matter  of  relation  between  the 
amount  in  question  and  the  total  of  the  accounts. 


'It 


36 


ACCOUNTANCY 


So  that  an  item  that  might  in  one  case  call  for  a 
distinct  qualification  might  safely  be  passed  in 
another  without  any  question  whatever.  This  whole 
matter  of  certificates  is  one  that  requires  clear 
thinking  and  cool  judgment,  and  a  failure  to  observe 
ethical  conduct  as  well  as  to  correctly  interpret 
the  accounting  and  financial  principles  involved 
may  result  in  a  wide-spread  wrong. 

As  I  have  already  intimated  the  accountant  must 
maintain  an  attitude  of  absolute  impartiality.  A 
contingent  fee,  for  instance,  should  never  be  the 
basis  of  compensation  to  the  accountant  in  a  case 
where  the  successful  flotation  of  an  issue  of  securi- 
ties is  at  stake.  No  matter  how  honest  at  heart 
a  man  may  be  he  cannot  avoid  being  swayed  to 
some  extent  by  his  personal  interests.  If  he  is  to 
receive  a  handsome  fee  when  certain  securities 
have  been  sold  to  the  public,  he  at  least  exposes 
himself  to  the  risk  of  giving  a  certificate  to  the 
accounts  that  is  more  favorable  than  it  would  be 
if  his  fee  were  not  hanging  in  the  balance.  If  the 
pubhc  is  to  rely  upon  the  certificates  of  public 
accountants  it  must  be  because  these  certificates 
are  signed  by  men  whose  eye  is  single  and  whose 
judgment  is  free  from  any  taint  of  self-interest. 

Even  if  the  accountant's  fee  is  not  a  contingent 
one,  his  judgment,  in  cases  involving  the  flotation 
of  securities,  is  open  to  attack  in  another  dkection. 
Quite  often  his  professional  relations  secure  for 
him  an  opportunity  to  buy  securities  for  himself 


ACCOUNTANCY 


37 


f 


upon  a  basis  that  is  not  open  to  the  general  pubHc. 
But  even  such  a  practice  as  this,  though  perhaps 
entirely  legitimate  for  another  man,  should  not 
be  accepted  by  the  accountant.  Neither  should 
securities  issued  by  a  client  be  bought  or  sold  by  the 
accountant  in  anticipation  of  an  immediate  rise  or 
fall  in  market  value,  and  he  should  carefully  refrain 
from  buying  securities  of  companies  with  which 
he  may  be  professionally  connected  that  are  of  a 
highly  speculative  character.  By  a  rigid  adherence 
to  these  rules  the  accountant  wdll  not  endanger 
his  impartiality  and  in  the  long  run  will  be  likely  to 
fare  as  w^ell  financially  as  he  w^ould  if  he  were  to 
subject  himself  to  the  distractions  of  speculation. 

Another  field  in  which  the  public  accountant  has 
to  some  extent  entered,  and  in  which  it  is  altogether 
probable  he  will  in  the  future  be  an  important ^v.^,^^^^^^^ 
factor,  is  in  relation  to  municipal  and  other  goveruT ' 
mental  accounts.  Special  investigations  have  been' 
made  by  accountants  of  several  of  the  departments 
of  our  national  government,  resulting  in  recom- 
mendations that  have  led  to  substantial  reforms 
in    the   accounting   systems   and    the   methods   of 

administration;    while    a    considerable    number    of 
...  \ 

American  cities  have  availed  themselves  of  account- \ 

ants'  services  to  remodel  their  accounting  methods 
and  from  time  to  time  to  audit  the  accounts  and 
certify  as  to  the  correctness  of  the  financial  state- 
ments appearing  in  the  annual  reports.  As  we  all 
know,  the  conditions  existing  in  public  offices  are 


1 


38 


ACCOUNTANCY 


I 


distinctly  different  from  those  obtainint^,  in  corpora- 
tion or  other  business  offices;  for  instance,  instead 
of  centraUzed  authority  there  is  in  most  cases  a 
division  of  authority  and  responsibiUty.  It  is  true 
that  the  executive  officers  have  certain  powers,  but 
generally  these  are  hedged  about  with  restrictions 
imposed  by  legislative  or  other  bodies,  and  altera- 
tions and  improvements  that  could  speedily  be 
effected  in  a  business  office  are  often  the  subject 
of  lengthy  discussion  and  uncertain  action  on  the 
part  of  legislators,  many  of  whom  are  quite  unable 
to  grasp  accounting  problems,  while  others  are 
deterred  from  granting  consent  by  reason  of  politi- 
cal cross  currents. 

In  spite  of  its  difficulties,  howwer,  this  field  of 
accounting   affords   opportunities   for   large   pubUc 
service,  and  as  our  citizens  gradually  awake  to  the 
importance  of  the  business  problems  involved  in 
governmental  functions  the  accountant  is  almost 
certain  to  exercise  a  widening  influence.     Of  those 
accountants    who    undertake    government    service 
either   by   way   of   special   engagement   or   to   fill 
appointive  or  elective  offices  the  profession  must 
/evev  demand  that  they  maintain  the  highest  stand- 
ards of  professional  honor  and  integrity.     Such  men 
are  subject  to  temptations  that  do  not  in  the  same 
way  assail  men  in  other  walks  of  life,  and  they  are 
surrounded  by  difficulties  that  call  for  the  largest 
measure  of  patience  and  of  firmness. 

In  order  that  accountancy  as  a  profession  may 


I 


i 


ACCOUNTANCY 


39 


assume  the  position  of  public  usefulness  that  it 
should  occupy,  accountants  must  feel  a  responsi- 
bility resting  upon  them  to  act  as  leaders  in  public 
thought  upon  questions  of  honest  finance  and  busi- 
ness morals.  The  accountant  occupies  a  position 
that  is  at  once  intimate  and  independent  from 
which  he  can  view  the  questions  of  administration 
as  well  as  the  problems  of  finance.  With  a  mind 
trained  to  observe  and  interpret  significant  factors 
in  the  course  of  business  events,  and  trained  also 
in  the  accurate  expression  of  conclusions  deduced, 
the  accountant  should,  and  I  beUeve  wdll,  become 
increasingly  a  leading  factor  in  the  development 
of  business  morality  and  stability.  But  this  result 
wall  come  only  through  the  acceptance  of  full  per- 
sonal responsibility  and  the  constant  cultivation 
of  those  habits  of  mind  which  lead  unerringly  to 
right  conclusions.  The  accountant  has  no  right 
to  shirk  his  individual  responsibility  whether  by 
hiding  his  identity  under  a  corporate  form  of  man- 
agement as  in  the  so-called  Audit  Company,  or  in 
any  other  manner,  but  he  should  stand  forth  as  a 
professional  man  seeking  the  honors  of  his  profession 
and  accepting  the  burdens  laid  upon  him. 

Time  has  not  permitted  an  extended  discussion 
of  the  ethical  requirements  devolving  upon  the 
accountant  in  his  intimate  relations  with  his  pro- 
fessional brethren,  which  in  the  last  analysis  fur- 
nish the  surest  index  to  the  true  character  of  any 
professional  man,  but  emphasis  has,  however,  been 


/ 


40 


ACCOUNTANCY 


laid  in  passing  upon  the  value  of  the  good  opinion 
of  the  members  of  the  profession,  the  possession  of 
which  can  be  attained  only  through  the  constant 
exercise  of  right  principles  of  conduct.     An  effort 
has  been  made  to  speak  of  at  least  some  of  the 
relations  of  the  accountant  to  his  clients  and  to  the 
public,  and  of  the  ethical  considerations  attached 
thereto.    What  I  have  said  will,  I  hope,  be  suggestive 
to  you,  and  may  I  also  express  the  further  hope 
that  the  picture  I  leave  in  your  minds  of  this  new 
profession  of  accountancy  is  that  of  a  calling  by 
no  means  free  from  problems  that  may  discourage 
or  defeat,  but  yet  a  life  of  noble  possibilities.  In 
the  realization  of   these  there  is  need  of  ability 
coupled  with  indomitable  energy,  tact,  and  courage, 
and  the  rewards  are  to  be  found  in  the  respect  and 
confidence  of  the  community  and  lu  lUe  conscious- 
ness of  a  life  devoted  to  useful  purposes  a!..l  lii^h 

uiruls. 


I 


LAWYER  AND   CLIENT 

In  discussing  the  relation  of  attorney  and  client 
it  is  my  aim  to  be  practical  rather  than  rhetorical. 
The  subject  has  indeed  its  temptations.  When  we 
remember  that  it  is  one  of  the  three  sacredly  con- 
fidential relations,  classified  under  the  phrases, 
priest  and  penitent,  physician  and  patient,  counsel 
and  chent,  and  note  with  what  zealous  care  the  law 
puts  a  seal  upon  the  mouths  of  priest,  physician,  and 
counsel  as  to  information  which  they  gain  from 
penitent,  patient,  and  client  in  the  course  of  their 
ministrations  in  respect  of  the  souls,  bodies,  and 
rights  of  those  who  ponfide  in  them,  it  is  not  easy 
to  forego  an  attempt  at  oratorical  flight.  We  are 
told,  however,  to  resist  the  devil  and  he  will  flee 
from  us.  So  I  shall  confine  myself  to  the  prosaic 
task  of  setting  before  you  various  rules  which  per- 
tain to  the  subject  in  hand.  I  want  to  send  you 
out  of  this  room,  not  with  a  hazy  idea  that  the 
lecturer  has  made  a  fine  speech,  but  with  certain 
principles  lixed  in  your  minds  so  firmly  that  you 
will  not  forget  them  at  a  time  when  you  may  need 
to  apply  them  in  your  own  affairs.  You  are  a  l)0(ly 
of  young  men,  fitting  yourselves  for  the  serious 
business  of  life.     This  lectiu*eship  has  been  founded 

41 


42 


LAWYER  AND  CLIENT 


for  use,  not  ornament.     A  few  of  you  may  become 
lawyers,    but    the   majority    will    be   clients.    Not 
necessarily  in  litigation.     May  Heaven  spare  you 
from  the  unsatisfactory  fate  of  spending  your  time, 
your  money,  your  nervous  force  upon  a  legal  lottery. 
I  have  practised  law  for  nearly  forty  years,  and  have 
had  my  triumphs  as  well  as  defeats,  but  it  is  my 
deliberate   judgment,    based  upon   observation   of 
others  as  well  as  experience  of  my  own,  that  litiga- 
tion is  more  than  ever  a  toss-up.     It  is  an  old-time 
proverb  that  no  one  can  tell  what  twelve  men  in  a 
box  will  do.     In  these  latter  days  a  corollary  should 
be  added:  Still  less,  what  one  man,  or  three  men, 
or  five  or  seven  or  nine  will  do  on  a  bench.     There 
is  more  disagreement  between  judges  as  to  questions 
of  law  than  among  juries  over  questions  of  fact. 
A  discussion  of  the  reasons  would  take  us  too  far 
afield.     I  have  often  wondered  how  the  system^  of 
enforced   unanimity   by   means   of   temporary   im- 
prisonment and  partial  starvation  would  work  if 
applied  to  appellate  courts.     You  may  be  fortunate 
enough  to  be  able  to  keep  out  of  court,  but  you  can 
hardly  hope  to  be  so  lucky  as  not  to  be  compelled 
to  go  into  a  law  office.     In  a  nation  composed  of 
some   fifty   different   commonwealths,   whose  com- 
merce is  not,  but  whose  jurisprudence  is,  bounded 
by  state  lines,  in  a  nation  whose  citizens  are  apply- 
ing the  socialistic  principle  of  associated  activity 
as  never  before,  the  need  for  a  lawyer  at  elbow 
is  greater  than  ever  before.     Hence  it  is  desirable 


LAWYER  AND  CLIENT 


43 


that  you  should  be  possessed  of  the  rules  of  the 
game. 

My  problem  is  to  put  before  you  those  rules  in  a 
way  that  will  be  interesting,  and  it  has  occurred 
to  me  that  this  may  be  done  if  we  work  them  out 
together  in  the  light  of  actual  occurrences.  History 
has  been  said  to  be  philosophy  teaching  by  example. 
That  is  the  reason  why  to  most  persons  history  is  of 
greater  interest  than  philosophy. 

These  rules  were  not  laid  down  in  advance  by 
enacting  authority.  At  one  time  mankind  was 
taught  to  believe  that  on  a  particular  day  at  a 
particular  place  a  particular  man,  by  name  Moses, 
received  from  the  Creator  of  the  universe  certain 
tables  of  stone,  on  which  had  been  engraved  certain 
rules,  called  the  Ten  Commandments.  This  is  not 
usual  teaching  now.  In  all  probability  no  such 
occurrence  ever  actually  took  place  except  in  spirit- 
ual vision.  Like  other  rules  of  conduct,  the  ten 
commandments  were  the  result  of  experience, 
which  demonstrated  their  necessity  long  before 
the  days  of  Moses.  Morality  is  a  matter  of  evolu- 
tion. Our  subject  is  a  branch  of  the  Science  of 
Applied  Morality. 

Therefore,  instead  of  my  assuming  the  role  of 
lecturer  and  speaking  to  you  from  the  height  of 
greater  age  and  experience,  let  us  get  at  the  rules 
by  imagining  the  various  transactions  which  call 
for  their  application.  This  room  shall  serve  as  my 
office.    I  am  at  my  desk;  each  of  you  is  a  client, 


44 


LAWYER  AND  CLIENT 


LAWYER  AND  CLIENT 


45 


who  has  come  for  a  consultation.  This  personal  way 
of  putting  things  may  smack  of  the  egotistical, 
but  it  is  adopted  as  the  best  method  of  bringing 
the  subject  home  to  you. 

Now,  first  of  all,  my  dear  sir,  how  did  you  come 
to  me?    Why  to  me,   rather  than  someone  else? 
The  pertinency  of  this  question  may  be  illustrated 
by  the  following  occurrence,  which  happened  here 
in    Connecticut.     A   farmer,    served   with    a   writ, 
went  into  town  to  employ  a  lawyer  to  defend  him, 
and  thinking  one  lawyer  to  be  as  good  as  another, 
dropped  into  the  first  office  he  saw  and  stated  his 
errand.     The  lawyer  looked  at  the  writ  and  found 
his  own  name  on  it  as  attorney  for  the  plaintiff  and 
told  the  farmer  he   could  not  take  the  defence, 
The  farmer  then  asked  what  he  should  do,  and  the 
lawyer  replied  that  he  would  give  him  a  letter  of 
introduction  to  a  friend.    The  letter  was  written, 
sealed  and  handed  to  the  farmer,  who  departed. 
On  his  way  to  the  second  lawyer  it  occurred  to  him 
that  it  might  be  just  as  well  to  know  what  the  one 
had  written  to  the  other.     So  he  tore  the  letter 
open  and  read  the  following  words:  ''Here  are  two 
^/m  geese,  I  will  pluck  one  and  you  can  pluck  the 
/'  other.''     One  day  a  woman  walked  into  my  office, 
a  stranger  without  any  letter  of  introduction,  and 
wanted  me  to  defend  her  in  a  suit.    I  asked  her 
how  she  had  come  to  me?    She  replied  to  the  effect 
that  she  had  seen  my  name  somewhere.     I  told  her 
this  was  a  very  poor  way  to  select  a  lawyer,  that 


she  had  no  guarantee  whatever  that  I  would  serve 
her  either  faithfully  or  well,  and  as  she  ought  not 
to  take  me,  I  could  not  take  her,  without  inquiry, 
and  she  must  therefore  bring  me  a  letter  of  intro- 
duction. 

If  a  man  should  not  put  himself  in  the  position 
of  seeking  the  advice  of  another,  without  inquiry 
as  to  his  experience  and  integrity,  it  is  obvious  that 
the  lawyer's  employment  should  not  be  the  result 
of  his  own  soHcitation.  The  business  of  advising 
another  man  is  a  deUcate  and  responsible  matter. 
If  I  volunteer  my  advice,  if  I  proffer  my  services, 
if  I  push  myself  upon  your  attention,  what  guarantee 
have  you  that  I  am  worthy  of  your  confidence? 
Thus  we  get  the  rule  which  should  govern  the  crea- 
tion of  the  relation.  Let  it  be  called  Rule  I.  The 
lawyer  should  be  sought  hy,  and  not  a  seeker  of,  the 
client,  / 

The  next  question  is,  what  are  the  facts  upon 
which  an  opinion  is  needed?  Is  it  not  clear  that  if 
you  do  not  tell  me  the  facts  as  they  really  are,  I  can- 
not give  you  the  advice  which  I  really  should? 
Let  me  give  you  an  illustration  which  happened 
in  my  own  office  recently.  A  client  of  mine,  a  non- 
resident, was  lately  sued  on  a  stale  claim,  growing 
out  of  transactions  when  he  had  hved  in  New  York 
fifteen  years  ago.  The  statute  of  limitations,  as 
to  the  morality  of  which  I  shall  have  something 
to  say  later  on,  was  only  a  doubtful  defense,  in  view 
of  his  removal  from  the  State.     He  told  me,  however. 


kljl 


46 


LAWYER  AND  CLIENT 


LAWYER  AND  CLIENT 


47 


that  he  did  not  owe  the  money,  and  knew  nothing 
about  the  claim.     Relying  on  this,  I  put  in  an  answer 
not  only  alleging  the  statute  of  limitations  as  a  de- 
fense, but  pleading  a  denial  of  the  indebtedness. 
When  it  came  to  the  trial,  the  plaintiff  produced 
letters  from  my  client  written  at  the  time,  acknowl- 
edging the  justice  of  the  claim  and  promising  to 
pay  if  time  were  given.    The  result  was  that  the 
plaintiff  got  judgment  for  the  full  amount.     Had 
my  cUent  told  me  the  truth,  my  advice  would  have 
been  to  settle  rather  than  fight.     He  thought  that 
by  deceiving  his  lawyer  he  might  be  able  the  better 
to  deceive  a  jury.     His  untruthfulness  to  me  cost 
him    several    hundred   dollars,   which   might    have 
been  saved  for  him  on  a  settlement. 

Thus  we  arrive  at  Rule  II.  The  client  should  tell 
his  lawyer  the  truth,  the  whole  truth,  and  nothing  hut 

the  truth. 

That  is  what  the  cUent  swears  to  do  when  he  takes 
the  witness  stand.  If  it  is  his  duty  to  tell  the  truth 
to  the  jury  in  public,  how  can  it  serve  his  interests 
not  to  tell  it  in  private  to  his  lawyer? 

There  is,  however,  a  qualification  to  be  made  at 
this  point.'  If  a  client  is  charged  with  crime,  and 
is  guilty,  it  is  not  to  his  interest  to  confess  it  even 
to  his  lawyer,  and  under  the  principle  that  no  man 
is  bound  to  criminate  himself,  he  is  not  under  a 
duty  to  do  so.  His  defense  will,  however,  be  em- 
barrassed if  his  lawyer  is  in  doubt  as  to  his  innocence. 
A  guilty  man  must  be  defended  by  technicalities, 


and  technicalities  are  the  ruination  of  an  innocent 
man.  One  of  the  most  important  responsibiUties 
resting  on  a  lawyer  in  a  criminal  case  is  in  advising 
his  client  as  to  going  on  the  witness  stand.  Once 
I  had  that  responsibility  in  a  murder  case.  The 
prisoner  stoutly  denied  his  guilt,  and  I  had  no 
positive  belief  about  it,  one  way  or  the  other.  The 
moment  came  when  I  had  to  advise  him  as  to  being 
a  witness  in  his  own  behalf..  I  was  puzzled  what  to 
do,  and  finally  told  him  that  I  did  not  know  whether 
he  was  guilty  or  not,  but  he  knew,  and  my  advice 
was,  that  if  he  was  innocent  to  take  the  stand,  and 
if  guilty  to  keep  off. 

We  need  not  spend  time  on  this,  for  that  none  of 
you  will  ever  be  in  such  a  predicament. 

The  last  rule  requires  another.  It  is  the  very 
foundation  of  such  a  relation,  that  whatever  you 
say  to  me  is  confidential  and  under  no  set  of  cir- 
cumstances can  I  be  allowed  to  reveal  it.  No 
argument  is  needed  in  favor  of  such  a  proposition. 
I  cannot  give  you  good  advice  unless  you  tell  me 
truly  the  facts.  You  cannot  tell  me  truly  the  facts, 
unless  you  know  that  your  confidence  will  be  re- 
spected. 

Thus,  out  of  the  necessities  of  the  situation 
arises  Rule  III.  A  lawyer  can  neither  be  compelled 
nor  allowed  to  disclose  the  communications,  which  his 
client  makes  to  him  in  the  course  of  a  professional 
employment.  This  does  not  mean  that  all  inquiry 
of  a  lawyer  is  barred,  when  he  chooses  to  utter  the 


If 
If 


48 


LAWYER   AND  CLIENT 


magical  phrase  "attorney  and  client."  There  is  a 
difference  between  transactions  of  the  client  in  the 
past,  which  under  the  seal  of  secrecy  he  tells  his 
lawyer  in  order  to  obtain  advice  as  to  his  conduct 
in  the  future,  and  present  transactions  carried  on 
by  both.  The  principle  that  no  man  can  be  com- 
pelled to  criminate  himself  may  protect  each  for 
himself,  but  it  does  not  protect  either  against  the 
other,  as  to  doings  of  both,  except  in  so  far  as  that 
neither  can  be  forced  to  tell  anything  against  the 
other  that  would  involve  himself.  The  protection 
being  personal,  either  may  waive  it,  and  if  so,  the 
whole  affair  be  divulged.  One  of  the  best  safe- 
guards against  joint  wrong-doing  is  that  none  of 
the  wrong-doers  have  any  guarantee  that  some  one 
of  them  will  not  confess.  Now  it  would  be  a  queer 
sort  of  jurisprudence  which  would  permit  a  man 
determined  to  perpetrate  a  wrong,  alnd  unable  to 
do  so  w^ithout  confederates,  to  hire  lawyers  as  con- 
federates, and  then  be  protected  against  their  evi- 
dence by  the  rule  that  communications  between 
lawyer  and  cUent  are  sacred. 

There  is  such  misconception  on  this  subject,  both 
in  and  out  of  the  profession,  that  I  am  going  into 
it  a  Uttle  farther.  It  is  especially  important,  in 
view  of  the  increasing  employment  of  lawyers  on 
boards  of  directorates.  In  a  case  some  years  ago, 
which  attracted  much  public  attention,  a  man  who 
was  both  lawyer  and  director  of  a  certain  corpora- 
tion   actually    urged    the    professional    relation    of 


LAWYER  AND  CLIENT 


49 


attorney  and  client  between  him  and  a  co-director 
as  a  bar  to  all  inquiry  as  to  their  joint  doings. 
Strange  to  say,  he  was  upheld  by  the  court.  An 
incident  in  my  own  practice  will  illustrate  the 
point,  and  show  how  a  lawyer  lost  a  case  for  a 
client  through  misconception  of  this  rule.  A  couple 
of  horses  had  been  sent  by  their  owner  to  New  York 
for  sale  and  placed  at  a  certain  livery  stable.  They 
were  not  sold  for  a  year  or  more.  The  bill  for  their 
keep  had  mounted  up,  and  when  the  livery  man 
sold  them  he  claimed  that  the  proceeds  of  sale 
were  not  enough  to  pay  his  bill,  and  brought  suit 
for  the  difference.  His  lawyer  fell  ill  and  I  was 
brought  into  the  case.  The  defendant's  attorney 
served  on  me  a  demand  for  a  bill  of  items,  showing 
how  much  each  horse  had  been  sold  for,  the  date  of 
sales,  and  the  names  and  addresses  of  the  pur- 
chasers. My  client  asked  me  if  he  was  required 
to  give  the  information.  I  advised  him  that  when 
one  man  sells  another  man's  property,  he  must 
always  tell,  when  asked,  to  whom,  when,  and  how 
much.  He  then  gave  me  names,  addresses,  dates 
and  amounts,  which  I  gave  to  the  defendant's 
counsel  in  a  formal  letter.  At  a  consultation  on 
the  eve  of  the  trial,  my  client  informed  me  that  he 
had  not  given  me  the  true  names  of  the  purchasers. 
I  asked  him  why  not.  He  replied  that  he  did  not 
want  the  defendant  to  go  to  them.  I  told  him  that 
that  was  the  very  reason  why  the  law  required  an 
agent  to  give  such  information   to  his  principal, 


50 


LAWYER  AND  CLIENT 


that  he  had  put  me  in  the  position  of  having  lied 
to  the  other  side,  and  I  would  not  have  anything 
more  to  do  with  his  case.     So  I  gave  him  his  papers 
and  a  consent  for  substitution,  and  sent  him  away. 
I  had  no  right  to  volunteer  to  the  other  side  the 
information  that  my  client  had  been  guilty  of  this 
deceit,  but  I  supposed  as  a  matter  of  course  that 
the  defendant,  having  ascertained  that  the  informa- 
tion was  false,  would,  on  learning  that  I  had  with- 
drawn, put  two  and  two  together  and  infer  my 
reason,  and  would  subpoena  me  as  a  witness,  to 
prove  that  the  He  was  my  chent's  and  not  mine. 
I  considered  the  question,   and  reached  the  con- 
clusion that  my  cUent's  statement  to  me  not  having 
been  given  to  me  as  a  secret  in  order  to  enable  me 
to  advise  him,  but  for  me  to  communicate  it  to  the 
other  party,  it  was  not  privileged.     The  trial  came 
off.     I  was  not  called.    Meeting  the  other  lawyer 
a  few  days  after,  I  asked  him  the  result,  and  he 
repUed  that  a  verdict  had  been  given  for  the  plain- 
tiff.    On  my  saying  that  I  had  supposed  he  would 
subpoena  me  to  prove  that  it  was  my  client  who 
had  given  me  the  names,  which  I  had  transmitted, 
he  replied  that  he  thought  that  it  was  privileged. 
Of  course  I  could  not  be  allowed  to  testify  to  my 
client's  second  communication  to  me  that  his  first 
was  false.    But  to  say  that  a  communication,  made 
to  a  lawyer  in  order  to  be  told  to  someone  else  is 
privileged,  is  absurd.     No  client  has  any  right  to 
have  his  lawyer  lie  for  him.    Neither  has  a  client 


LAWYER  AND  CLIENT 


51 


any  right  to  engage  a  lawyer  to  join  him  in  a  crimi- 
nal transaction,  with  the  expectation  that  the  law 
will  seal  the  lawyer's  mouth. 

You  can  see  how  important  it  is  to  have  right 
notions  about  the  scope  of  this  rule.  It  is  known 
that  members  of  legislative  bodies  are  often  bribed 
by  emissaries  of  corporations.  It  seems  to  be 
generally  forgotten,  but  years  ago,  a  certain  lawyer, 
now  a  distinguished  man,  was  the  lobbyist  for  a 
certain  great  railroad  company,  and  his  experi- 
ences as  a  go-between  would  throw  a  flood  of  light 
upon  the  way  in  which  legislation  is  obtained  or 
thwarted.  He  could  not  be  compelled  to  criminate 
himself  in  respect  of  those  transactions,  but  if  he 
were  willing  to  turn  state's  evidence,  the  rules 
which  we  are  considering  could  not  be  invoked  to 
stop  him  from  criminating  his  cUents.  As  testators 
who  have  their  lawyers  witness  their  wills  thereby 
break  the  seal  of  secrecy,  so  likewise  do  corpora- 
tions who  make  their  lawyers  directors.  A  lawyer 
cannot  be  a  confidential  adviser  of  a  corporation  iX 
and  its  director  at  one  and  the  same  time,  for  the 
purpose  of  shielding  his  client  behind  this  rule. 

Having  found  your  lawyer  by  a  careful  process 
of  selection,  having  told  him  the  truth  as  to  the 
facts  concerning  which  you  wish  his  advice,  having 
done  so  with  the  knowledge  that  he  can  never 
reveal  them  to  anyone  else,  what  is  it  that  you  ask 
from  him?  Do  you  want  his  real  opinion,  or  do 
you  want  him  to  say  something  to  please  you? 


/ 


52 


LAWYER  AND  CLIENT 


LAWYER  AND  CLIENT 


53 


You  may  want  him  to  say  a  smooth  thing,  but  what 
is  it  that  you  need?  Let  me  illustrate.  A  client 
once  consulted  me  as  to  his  course  in  respect  of  his 
wife,  from  whom  he  had  separated.  My  opinion 
as  to  what  he  should  do  was  not  what  he  wanted 
to  do,  and  he  grew  angry  at  me.  I  asked  him  what 
he  had  come  to  me  for,  my  opinion  or  his  opinion 
from  my  lips;  that  as  I  understood  it,  he  was  paying 
for  my  opinion,  and  it  was  my  duty  to  give  what  he 
paid  for.  He  was  not  bound  to  take  it,  but  I  could 
not  consent  to  let  him  pay  for  his  opinion  from  my 
lips  as  if  it  were  mine.  He  saw  the  point  and  his 
good  humor  returned. 

Thus  we  reach  Rule  IV.  As  the  client  must  he 
sincere  with  the  lawyer  as  to  the  facts,  so  the  lawyer 
mnst  he  sincere  with  the  client  as  to  his  opinion. 

But  is  the  client  to  be  bound  by  what  his  lawyer 
says?  Not  at  all.  His  lawyer  is  not  the  court; 
he  has  no  right  to  dictate  what  course  the  client 
shall  pursue.  1  h  is  simply  the  adviser.  His  client 
como^  to  get  his  advice,  pays  for  it,  and  having 
oi)t:ii!if'il  it  can  do  with  it  as  he  can  with  anything 
else  of  hi-  own.  \ow  just  as  it  is  liunuin  nature 
U)V  a  fli'  nt  to  gel  angry  if  his  law>  rr\s  advice  is 
un|)alai:i})le,  so  a  lawyer  does  not  relish  his  advice 
l)oinu;  rejected.  A  moment's  reflection  will  convince 
u<  that  aim.  !•  «  I!  hi>^  part  is  equally  out  of  place. 

Thus  we  g('i  iliile  W  If  a  client  does  not  act  in 
accordance  with  his  lawyer's  advice,  the  latter  has  no 
right  to  he  displeased. 


This  in  turn  involves  a  correlative  rule,  which  I 
can  best  bring  out  by  giving  you  an  actual  case. 
Last  year  a  lady  called  on  me  to  take  up  a  case  for 
her  which  had  been  in  the  hands  of  several  lawyers, 
one  after  another.  She  had  grown  dissatisfied  with 
each  of  them  and  had  made  a  change.  I  soon 
found  that  my  advice  to  her  was  as  likely  to  be  dis- 
tasteful as  that  of  my  predecessors.  So  I  told  her 
at  the  outset  that  unless  she  was  willing  to  be 
guided  by  it,  I  should  have  to  ask  to  be  reUeved 
from  the  responsibility  of  conducting  her  case. 
I  told  her  that  it  was  in  a  sad  tangle  and  I  could 
not  undertake  the  responsibility  of  piloting  the  ship 
unless  my  directions  were  to  be  followed,  and  if 
she  intended  to  order  the  pilot,  she  would  hav^e  to 
employ  one  who  was  willing  to  be  commanded.  So 
we  parted  on  good  terms. 

It  is  not,  however,  always  necessary  for  a  lawyer 
to  take  this  position.  It  sometimes  happens  that 
it  is  quite  compatible  with  his  self-respect,  and  also 
with  his  responsibilities,  if  he  continues  in  his  chent's 
employ,  even  though  his  client  may  not  take  his  ^ 
advice  on  all  points.  Every  man  must  determine  v 
such  a  question  for  himself.  Yielding  to  a  client 
does  not  always  mean  subservience.  The  question 
is  whether  in  the  lawyer's  opinion  it  will  imperil 
his  chent's  interests  if  he  does  not  take  the  course 
advised,  and  whether  the  lawyer  must  stand  re- 
sponsible for  the  course  the  client  persists  in  taking 
against  his  advice. 


54 


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LAWYER  AND  CLIENT 


55 


Hence  Rule  VI.  The  lawyer,  though  not  always 
bound  to  decline  to  act  for  his  client  against  his  own 
judgment,  has  the  right  to  do  so,  and  the  client  has  no 
right  to  be  displeased  at  his  lawyer  if  he  takes  the 
position  that  the  client  must  follow  his  advice  or  get 

another  adviser. 

At    this    point    an    interesting    question    arises. 
What  part  has  morality  to  play  in  the  advice  which 
a  lawyer  gives?    Take  the  case,  to  which  I  referred 
a  moment  ago,  of  the  client  who  w\as  sued  on  a  stale 
claim.     Have  I  any  moral  right  to  advise  my  client, 
who  is  sued  on  a  just  claim,  that  he  can  get  out  of 
it  by  pleading  the  statute  of  limitations,  as  it  is 
called?     That   statute   prescribes   the   time  within 
which    suits    must    be    brought.     To    answer    this 
question  we  must  see  what  it  is  concerning  which 
the  di'  nt   asks  the  advice.     Suppose  you  come  to 
me  and  say  you  have  been  sued  on  a  promissory 
not(\  to  which  you  liave  no  defense,  but  which  was 
pivon  more  than  six  year.-  ago,  and  you  say  that 
you  are  not  able  to  pay  the  (lol)t.  but  that  it  will 
injure  you  very  much  to  have  a  ju(|u;m(Mit   a<i:ainst 
you,  am!  yon  a^^k  m(^  whctlier  there  is  any  law  which 
will  (Mi;ible  you  to  prevent  the  jiidamont  from  being 
obtained.     Tliere  is  a  law  to  theeti'ect  that  a  person, 
who  i^  not  bued  on  a  debt  within  six  years  of  its 
l)ein,ii:  contracted,  may  set  up  that  delay  as  a  valid 
defense.     Is  it  not  clear  that  I  wr.uld  be  derelict  in 
mv  dutv  to  you  if  I  failed  to  inform  you  of  such  a 
[;ev  ^     I  should  not  be  telling  the  truth.     You  iiave 


asked  my  opinion  on  a  question  of  law,  and  I  am 
bound  to  give  you  a  truthful  answer. 

Hence  Rule  VH.  A  lawyer  is  bound  to  give  his 
opinion  on  a  question  of  law  without  regard  to  any 
question  of  morality. 

It  would,  however,  be  superficial  to  dismiss  the 
subject  of  morality  without  anything  further.     You 
do  not  pay  me  merely  for  an  opinion  on  an  ab- 
stract question  of  law;  you  have  been  sued;  you  want 
to  know  what  to  do;  the  information  which  you  seek 
from  me  is  an  opinion,  by  which  your  conduct  is 
to   be  regulated.     The   moment   we   get   into   the 
realm  of  conduct,  we  encounter  a  moral  atmosphere. 
How  far  it  is  right  for  a  man  to  take  advantage  of 
the  technicalities  of   the  law  is  a  moral  question. 
His  legal  adviser  is  bound  to  take  this  into  account. 
In  some  cases  it  is  not  immoral,  in  others  it  is,  for 
a  man  to  avail  himself  of  a  technicality.     Why  is 
not  a  lawyer  bound  to  advise  on  that  question  also? 
How  can  he  be  said  to  discharge  his  duty  if  he 
refrains*?     It  is  at  this  point,  as  it  seems  to  me,  the 
ethics  of  my  profession  stand  in  need  of  improve- 
ment.    It  may  w^ell  be  that  if  you  only  ask  me  as 
to  the  law,   I  have  no  standing  to  give  you  my 
opinion  on  the  morality  of  its  application  to  your  case. 
But  if  you  ask  my  advice  as  to  what  you  shall  do, 
or  my  assistance  in  doing  it,  then  I  hold  that  I  am 
under  a  duty  as  a  man,  as  a  citizen,  and  as  your 
counsel,  to  give  you  my  opinion  as  to  the  morality 
of  your  proposed  conduct,  to  dissuade  you  from 


56 


LAWYER  AND  CLIENT 


LAWYER  AND  CLIENT 


57 


doing  an  immoral  thing,  however  legal  it  may  be, 
and  to  refuse  you  my  assistance,  if  you  persist. 
I  cannot  say  that  this  is  well  settled,  or  even  gen- 
erally accepted,  but  I  shall  venture  to  lay  down  as 
Rule  VIII  one  which  ought  to  be  the  rule,  if  it  is 
not.  //  legal  advice  is  for  the  purpose  of  regulating 
a  clienfs  future  conduct,  U  is  the  duty  of  the  lawyer 
to  express  his  opinion  on  the  morality  of  a  proposed 
line  of  conduct. 

Whether  a  lawyer  should  refuse  to  act  for  a  client, 
where  he  does  not  share  in  the  moral  responsibihty, 
is  a  difficult  question.  Take  the  defense  of  the 
statute  of  limitations.  Its  purpose  is  not  to  enable 
dishonest  debtors  to  take  advantage  of  their 
creditor's  leniency,  and  evade  the  payment  of  a 
just  (ul)i.  I  ar  irr>ni  it.  Its  real  ol)ject  is  to  pro- 
tect honest  men  from  the  prosecuuuu  of  unjust 
claims,  where  the  lapse  of  years  has  resulted  in  loss 
of  the  evidence  on  wliich  tli<  ir  defense  rests.  The 
law  mu^t,  howtn-er,  be  geiiiTa!  in  u.^  icnns.  It  can- 
not >a\-  tliat  honest  men  shall  not  be,  and  dishonest 
men  may  he.  sikmI  after  six  y(\ir<.  It  can  only  say 
that  nciileet  to  -ur  -haU  hi'  a  drtVn^c  for  aU  men. 
Whether  a  [)arti(ailar  man  -liaU  plead  it,  is  left  for 
each  man  to  determine  for  himself.  It  is  an  im- 
moral tiling  for  a  man  not  to  pay  his  debts,  if  he  is 
able,  and  it  is  his  duty  to  do  all  in  his  power,  so  that 
he  may  he  able,  whether  it  be  in  one  year  or  ten. 
Tlien^  are.  however,  eircum^tanees  which  morally 
justify  a  debtor  in  putting  in  the  defense  that  the 


suit  was  not  brought  in  time.  There  is  no  doubt 
as  to  the  justifiabiUty,  where  he  does  not  owe  the 
amount  as  claimed.  But  even  if  he  does,  it  may  be 
justifiable  for  him  to  claim  the  protection  of  the 
statute.  Each  case  is  Uke  a  tub,  and  must  stand 
on  its  own  bottom.  The  lawyer  should  have  suf- 
ficient moral  perception  to  discern  what  is  the  right 
thing  to  do,  the  courage  to  advise  his  client  to  do  it, 
and  the  abihty  to  help  him  do  it  in  a  way  to  bring 
peace  to  his  client  without  loss  of  honor.  The 
right-minded  client  will  in  the  end  thank  him,  and 
for  the  wrong-minded  he  should  not  care.  I  am 
free  to  admit  that  this  gets  very  close  to  what  is 
called  a  counsel  of  perfection. 

This  again  brings  us  to  another  rule.  I  have  no 
right  to  take  you  by  the  throat  and  compel  you  to 
follow  my  advice.  Suppose  the  client  refuses  to 
take  it  and  insists  upon  the  lawyer  putting  in  a 
defense  which  is  legal,  even  though  it  may  be  im- 
moral, must  the  lawyer  refuse  to  do  so?  Do  you 
not  see  how  it  would  break  up  the  w^hole  system, 
if  the  moral  responsibility  for  an  action  is  taken 
from  the  shoulders  of  the  client  and  transferred 
to  those  of  the  lawyer?  The  latter  has  enough 
load  to  carry  already.  He  must  know  the  law. 
To  do  wdiich  he  must  have  studied  it  for  years  and 
must  keep  abreast  of  the  decisions  by  which  it  has 
been  and  is  being  developed.  Otherwise  he  is  not 
competent  to  undertake  the  responsibility  of  advis- 
ing another  man.     To  saddle  him  with  the  moral 


58 


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LAWYER   AND  CLIENT 


59 


responsibility  for  the  client's  action  would  be 
unfair  to  him  and  highly  inexpedient  in  our  scheme 
of  government. 

And  so  we  have  Rule  IX.  The  moral  responsi- 
bility  for  conduct  as  the  result  of  legal  advice  rests 
upon  the  client  and  not  upon  the  lawyer  except  as  the 
latter  participates  therein,  in  which  event  the  lawyer 
cannot  divest  himself  of  responsibility  for  what  he 

himself  does. 

This  hrin^^s  us  to  the  most  important  of  all  the 
question.^  wiucli  arise  between  lawyer  and  client, 
liow  far  may  a  lawyer  go  in  the  prosecution  or 
defense  of  a  cliont's  rit^hts?  It  is  often  popularly 
I,ut  iihrv  lias  fa.-^hlon:  Is  it  justifiable  for  a  lawyer 
todef(ni(l  a  r-liont  whom  he  knows  to  be  in  the  wrong? 
WIkmi  thus  put  there  can  b(^  l)Ut  one  answer.  ^  A 
client  has  a  ri<i;tit  by  law  to  defeml  himself  against 
any  charge.  lie  is  not  bound  to  criminate  himself 
by"^  confession.  A  pl(M  of  guilty  is  a  confession. 
Hence  li(^  has  a  legal  right  to  i)li\id  not  guilty.  He 
has  a  legal  right  to  put  in  that  \)\i\\  through  a  lawyer, 
and  when  he  dof^s,  he  has  a  h^gal  right  to  remain 
unconvict(Ml  except  upon  evid(Mice  that  is  admissible 
under  the  law,  and  his  lawyer  has  a  moral  right  to 
guard  him  against  a  conviction  which  is  not  accord- 
ing to  law.  This  answer  is,  however,  unsatisfactory 
to  many  good  persons.  It  smacks  of  technicality. 
It  has  ennabled  many  scoundrels  to  go  unwhipped 

of  justice. 

There  were  two  famous  cases  in  tlie  last  century 


which  will  serve  to  illustrate  certain  phases  of  this 
matter.  About  1840,  a  leading  barrister  in  London, 
Charles  Phillips,  was  defending  a  Frenchman,  one 
La  Voisier,  on  a  charge  of  murder.  During  the 
trial  the  prisoner  informed  his  counsel  that  he  was 
guilty,  and  thereupon  the  counsel  privately  informed 
the  judge  and  submitted  the  question  as  to  whether 
he  should  withdraw  from  the  case.  The  judge 
ruled,  and  in  my  opinion  rightly,  that  he  could  not 
honorably  leave  the  prisoner  in  the  lurch,  but  should 
carefully  abstain  from  asserting  any  belief  in  his 
innocence.  I  have  never  been  able  to  see  what 
right  the  counsel  had  to  inform  the  judge  as  to 
his  client's  confession.  Nor  had  he  any  right  to 
cast  upon  the  judge  the  responsibility  of  deciding 
as  to  his  continuance  in  the  case.  It  was  for  him- 
self to  determine,  and  his  determination  should  have 
been  to  keep  silent  as  to  the  confession  and  go  on 
with  the  defense.  The  law  does  not  permit  a  man 
to  plead  guilty  of  murder  in  the  first  degree,  for 
the  law  does  not  countenance  suicide,  and  to  coun- 
tenance a  plea  of  guilty  is  to  allow  a  man  to  do 
indirectly  what  he  may  not  do  directly.  In  case 
of  crime  of  lesser  degree,  I  hold  that  if  a  man  con- 
fesses his  guilt  to  his  counsel,  it  is  the  latter's  plain 
duty  to  advise  him  to  plead  guilty,  when  sure  that 
the  confession  is  true.  If,  however,  the  prisoner 
refuses,  then  it  seems  to  me  that  it  is  the  counsel's 
duty  to  withdraw  from  the  defense,  or  at  least 
only  remain  to  see  that  his  client  is  not  convicted 


60 


LAWY]:rv  A\n  client 


upon  iiuulniissible  evidenco.     How  can  an  honorable 
lawyer  honorably  ur<^c  any  other  plea  in  behalf  of 

a  guilty  man? 

The  other  ease  is  more  famous  still.     WHien  that 
miseral)le  Kin^i;  George  1\'  was  on  the  throne,  he 
tried  to  get   through   Parlianu^nt  a  l)ill  of  divoree 
against  his  wife  C^^ieen  Caroline.     He  had  in  faet 
been  married  to  another  woman,  Mrs.  Fitzherbert, 
before  he  aseended  the  throne,   and  as  she  was  a 
Roman  (\itholic   he  had   by   the    law  of    England 
forfeited  his  title  to  the  throne.     The  faet   of  his 
prior  marriage  was  a  seeret  known  to  but  few,  and 
had  been  faithfully  kept  l)y  them,  and  the  raseally 
husband  had  been  allowed  to  ascend  th(^  throne  and 
marry  Caroline  in  the  belii^f  that  a  marriage,  which 
under  oath  he  denied,  would  never  be  proved  against 
him.     He    was    thus    a    bigamist    and    a    perjurer. 
During    tlie    trial    in   Parliament    (iueen    Caroline's 
counsd.   Brougham  and    Denman,   were  given  the 
proofs  of  his  first  marriage,  and  thus  fortified  they 
caused   it    to   be   intimated   to   the   King's   counsel, 
that   if  the  trial  were  proceeded  with,   they  would 
prove    the    bigamy    and    dispute    his    title.     For    a 
while  it  was  supposed  that   they   would  not   have 
the  courage  to  carry  out  their  tlu'cat.     Brougliam 
cUssipated    that    hope    by    an    inuuortal    utterance, 
during  one  of  his  speeches  in  his  client's  defense. 
After  the  use  of  language  which,  to  them  who  knew 
the  secret,  shovred  that   he  was  rc^fcrring  to   it,   he 
stated  that  he  would  conceive  himself  bound  not 


LAWYER  AND  CLIENT 


61 


to  make  it  public,  if  the  bill  were  not  pressed,  other- 
wise he  would.  Then  came  this  statement  of  a 
counsel's  duty  in  words  that  will  remain  imperish- 
able, words  which  have  nerved  many  a  counsel  to 
do  his  duty  in  face  of  adverse  public  opinion: 

''And  let  it  not  be  thought,  my  lords,  that  if 
either  now  I  did  conceive,  or  if  hereafter  I  should 
so  far  be  disappointed  in  my  expectation  that  the 
case  against  me  will  fail,  as  to  feel  it  necessary  to 
exercise  that  right  —  let  no  man  vainly  suppose, 
that  not  only  I,  but  that  any,  the  youngest,  member 
of  the  profession  would  hesitate  one  moment  in  the 
fearless  discharge  of  his  paramount  duty.  I  once 
took  leave  to  remind  your  lordships  —  which  was 
unnecessary,  but  there  are  many  whom  it  may  be 
needful  to  remind  —  that  an  advocate,  by  the 
sacred  duty  which  he  owes  his  client,  knows,  in  the 
discharge  of  that  office,  but  one  person  in  the  world, 
that  client  and  none  other.  To  save  that  client  by 
all  expedient  means  —  to  protect  that  client  at 
all  hazards  and  costs  to  all  others,  and  among 
others  to  himself  —  is  the  highest  and  most  un- 
questioned of  his  duties;  and  he  must  not  regard 
the  alarm,  the  suffering,  the  torment,  the  destruc- 
tion, which  he  may  bring  upon  any  other.  Nay, 
separating  even  the  duties  of  a  patriot  from  those 
of  an  advocate,  and  casting  them,  if  need  be,  to  the 
wind,  he  must  go  on  reckless  of  the  consequences, 
if  his  fate  should  unhappily  be,  to  involve  his  coun- 
try in  confusion  for  his  client's  protection!^' 


G2 


LAWYER   AND  CLIENT 


This  (l(4ivcM':inco  has  sometimes  been  claimed  to 
mean  that  in  tlie  service  of  his  cUent  a  huvyer  should 
not   hesitate  to  connnit   any  wron^i;.     If  that   were 
so,  then  the  utterance  would  be  infamous.     Nothing 
of  the  sort  was  in  Brout2;liam's  mind,  as  anyone  will 
discover  on  reading  his  own  account  of  the  circum- 
stances under  which  it  was  made.     The  suggestion 
is  an  insult  to  his  memory.     An  honorable  man  will 
not  take  dishonorable  means  to  win  a  client's  case, 
whether   criminal   or   civil.     I    confess   that    in    the 
latter  it  is  often  a  difhcult  thing  to  decide  whether 
to  have  anything  to  do  with  a  case  after  one  has 
reached  the  opinion  that  the  client  is  in  the  wrong. 
Lawyers  should  l)e  very  careful  in  making  up  an 
opinion   adverse   to   their   client.     They   should  re- 
member that  judgment  is  not  their  role  in  the  drama 
of  a  lawsuit,  and  that  if  actors  interfere  with  each 
other's  part<.  the  play  will  be  marred.     There  are 
five  roles  in  a  lawsuit,  that  of  the  witness  to  testify 
as  to  the  fa^ts.  that   of  the  lawyer  to  develop  the 
testimony  and   argue  (luestions  of  law  to  the  court 
and  (iue>tions  of  fact   to  the  jury,  of  the  judge  to 
decide  those  of  law,  of  the  jury  to  pass  on  those  of 
fact,  and  lastly,  of  the  sheriff  to  execute  the  judg- 
ment on  tlie  verdict.     As  a  scheme  for  the  admin- 
istration of  justice  and  the  settlement   of  quarrels 
in  court,  which  the  parties  have  not  been  able  to 
settle  out  of  court,  it   is  the  best  ever  devised  by 
the  wit  of  man.     It   only   fails  to  work  perfectly 
because  the  man  on  the  stand,  at   the  bar,  in  the 


LAWYER  AND  CLIENT 


63 


box,  and  on  the  bench,  are  fallible  human  beings, 
like  the  clients  whose  controversies  they  are  trying 
to  end.  As  the  witnesses  must  not  become  advo- 
cates, nor  the  judge  invade  the  province  of  the  jury, 
nor  the  jury  refuse  to  take  the  law  from  the  judge, 
so  the  advocate  must  not  act  as  a  witness,  or  a  judge, 
or  jury.  Hence  no  lawyer  can  properly  decide 
whether  the  story  of  his  client  or  of  the  opponent 
is  in  accord  with  the  facts.  But  there  is  a  prelimi- 
nary question  which  the  lawyer  does  have  to  decide, 
and  that  is  as  to  the  merits  upon  his  client's  own 
statement.  If  on  that  statement  his  client  has  no 
cause  of  action,  or  defense,  it  is  his  duty  to  say  so 
and  advise  against  bringing  suit  or  making  defense. 
Whether  it  is  right  for  him  to  go  on,  after  giving  his 
client  advice  not  to  do  so,  is  a  mooted  point  on 
wdiich  I  cannot  say  that  the  ethics  of  my  profession 
are  settled.  I  can  only  state  Rule  X,  as  I  think 
it  ought  to  be.  A  lawyer  may  properly  defend  a 
person  against  a  criminal  or  civil  complaint,  even 
though  he  believes  the  client  to  be  in  the  wrong,  but 
should  not  have  anything  to  do  with  the  prosecution 
of  a  plaintiff's  cause  if  he  is  satisfied  that  it  is  devoid 
of  merit,  or  has  any  good  reason  to  believe  that  the 
client,  in  stating  his  case,  does  not  tell  the  truth.  Under 
that  rule,  a  custom  wiiich  is  growing  up  of  bringing 
cases  for  no  other  reason  than  to  induce  a  settlement 
is  most  reprehensible.  So  also  is  the  custom,  in 
w^hich  some  lawyers  too  often  indulge,  of  criticising 
in  public  an  adverse  decision  of  judge  or  jury.     This 


64 


LAWYER    AM)   ILIKXT 


very  morning's  papers  contain  a  vulc^ar  diatribe 
l)v  \\\c  c-uiiii.-el  for  a  mur<l(>rer  against  the  jury 
whidi  rofiviftod  him.  Criticism  of  a  judge  or  a 
jui\  IS  riti;ht  enough  wlitMi  made  in  the  proper  place 
and  at  the  proper  time.  No  lawyer  of  good  stand- 
ini:  \\ill  ever  permit  his  zeal  for  his  client,  or  his 
o\\  II  self-love,  to  betray  him  into  a  public  railing  at 
judge  or  jur}  l^ecause  of  his  defeat. 

I  have  alluded  to  confidence  as  the  foundation 
stone  of  the  relation  between  lawyer  and  client. 
I  have  suggested  that  the  moment  that  stone  is 
removed,  the  edifice  tumbles.  WTiat  then  is  to  be 
sai  1  about  the  right  to  terminate  the  relation? 
You  have  come  into  my  office  freely,  are  you  free 
to  leave?  Is  my  office  a  web?  Am  I  a  spider? 
Are  you  a  fly?  \Mien  you  enter  my  door,  are  you 
bound  to  me  forever?  Am  I  bound  to  you?  To 
ask  such  questions  is  to  answer  them.  It  is  against 
jjullic  pohcy  to  allow  either  lawyer  or  client  to  hold 
the  other  against  his  will. 

So  sacred  is  this  right,  in  both,  that  it  cannot  be 
overcome  V)y  contract.  Pul)lic  poUcy  stands  in  the 
way.  It  may  well  be  that  where  the  services  of 
a  lawyer  are  of  a  cleriml  nature,  and  he  has  been 
engaged  on  a  salary  for  a  specified  time,  he  may  not 
be  discharged  before  the  time  without  liability  for 
his  salary  in  full  as  in  the  case  of  any  emi)loyee. 
But  in  res])ect  of  services  as  an  adviser  or  in  the 
conduct  of  a  litigation,  ehlier  may  terminate  the 
relation    without    I)ringin2;   himself    under   any   lia- 


LAWYER  AND  CLIENT 


65 


bility  for  payment,  or  for  unperformed  service. 
Ignorance  of  this  rule  cost  a  certain  suitor  in  New 
York  not  long  ago  twenty-five  thousand  dollars. 
He  had  employed  a  lawyer  to  prosecute  a  claim  of 
$500,000  for  five  per  cent  of  the  recovery.  Before 
the  suit  was  started  he  concluded  to  change  his 
lawyer,  and  employed  another.  When  the  latter 
collected  the  claim,  the  discarded  lawyer  brought 
suit  for  the  five  per  cent,  on  the  theory  that  his 
client  had  broken  a  contract  and  by  reason  thereof 
he  had  sustained  damages  in  the  loss  of  the  five 
per  cent.  Marvelous  to  relate,  he  succeeded.  The 
defendant's  counsel  omitted  to  call  the  attention 
of  the  court  to  the  right  of  a  client  to  change  his 
lawyer  at  any  moment  on  the  sole  condition  of  pay- 
ing him  the  reasonable  value  of  his  services  to  the 
time  of  the  discharge,  and  the  court  overlooked  it, 
as  also  the  point  that  no  contract  by  a  lawyer  for 
a  share  of  the  recovery  is  rated  except  as  a  measure 
for  payment  of  services  actually  rendered.  The 
suit  was  defended  on  the  ground  that  no  agreement 
of  employment  had  been  consummated,  the  jury 
found  it  had,  and  the  lawyer  obtained  twenty-five 
thousand  dollars  as  compensation  for  services  w^iich 
he  had  never  rendered.  Although  the  judgment  w^as 
affirmed  on  appeal,  —  the  points  as  to  public  policy 
being  again  overlooked,  —  and  although  the  lawyer- 
plaintiff  was  an  eminent  man,  I  do  not  hesitate  to 
assert  that  his  suit  was  w^ithout  any  justification 
either  in  law  or  morals.     The  reason  W' ill  more  fully 


66 


LAWYI:K    AM)   CLII'XT 


appear  uiil'  i  ih^  la^t  rule  which  I  shall  give  you. 
Meantime  iluie  Xi  may  be  stated.  The  relation  of 
lawyer  and  client  may  he  terminated  by  either  upon 
reasonable  notice,  without  giving  any  reason. 

The  next  and  last  rule  concerns  compensation. 
Here  again  the  best  ethics  on  the  subject  can  be 
found  by  observing  the  interests  at  stake.  You 
come  to  me  for  advice,  you  want  my  real  opinion, 
you  have  told  me  the  truth,  knowing  that  I  will 
respect  your  confidence,  you  expect  me  to  advise 
you  sincerely,  you  then  purpose  to  weigh  my  advice, 
and  if  it  pleases  you  to  follow  it,  and  if  it  involves 
conduct  on  my  part,  you  wish  me  to  act,  and  if  I 
am  to  do  so  I  must  do  it  with  the  sole  eye  for  your 
interests,  but  in  doing  so  must  act  honorably,  to 
the  court,  to  my  opponents,  to  every  one  concerned. 
Now,  the  very  fact  that  a  man,  not  being  a  good 
judge  in  his  own  cause,  goes  to  an  adviser  in  order 
to  have  a  disinterested  man  at  the  helm,  presents  a 
controlling  reason  w^hy  a  lawyer  should  not  have 
any  pecuniary  interest  in  the  controversy.  His 
mind  should  be  kept  clear  of  fogs,  for  that  he  is 
to  steer  the  course.  Self-interest  does  affect  us, 
as  iron  affects  the  magnetic  needle.  So  it  has  been 
held  from  very  early  times  that  lawyers  should  not 
be  allowed  to  contract  for  an  interest  in  the  contro- 
versy, whether  as  compensation  for  their  services, 
or  as  an  investment,  or  as  a  speculation. 

Fifty  years  ago  in  our  State  and  in  most  other 
States  this  salutary  rule  was  departed  from,  and 


LAWYER  AND  CLIENT 


G7 


because  that  departure  was  not  properly  safeguarded, 
the  scandals  now  known  as  the  abuses  of  the  con- 
tingent fee  have  sprung  up,  and  our  profession  is 
grappUng  with  their  deteriorating  influences,  from 
which  we  must  rescue  ourselves  or  we  shall  become 
a  perfect  byword  and  scorn  in  the  nation. 

This  is  not  to  say  that  contingent  fees  should  be 
aboUshed.  They  are  a  necessity.  The  subject  is, 
however,  too  large  to  go  into  here,  and  I  shall  con- 
tent myself  with  stating  Rule  XH.  The  lawyer  is 
entitled  to  reasonable  compensation  for  his  services, 
and  should  refrain  wherever  possible  from  agreeing 
that  his  compensation  should  be  by  way  of  a  share  in 
the  recovery. 

Stress  should  be  laid  upon  the  phrase,  ''reason- 
able compensation.''  It  is  still  the  law,  w^hatever 
may  be  the  practice,  that  the  compensation  must 
be  reasonable.  There  is  much  ground  for  complaint 
of  late  years  that  amounts  demanded  for  legal  ser- 
vices are  too  often  unreasonably  large.  The  vul- 
gar commercialism  of  the  times  has  affected  the 
law  as  much  as  medicine.  Neither  of  the  two  pro- 
fessions has  any  standing  to  taunt  the  other  for 
demanding  exorbitant  sums  for  ordinary  service. 
Only  the  other  day  I  knew  of  a  doctor  who,  after 
rendering  a  reasonable  bill  to  a  wealthy  man  for 
one  thousand  dollars  for  six  months'  services,  and 
his  patient  dying  two  months  afterward,  sent  in  a 
bill  to  the  executor  for  services  of  the  same  kind 
for  the  two  months  and  put  the  amount  at  nine 


68 


LAWYER  AND  CLIENT 


thousand  dollars.  It  was  a  case  where  the  doctor 
knew  that  the  family  would  not  contest  his  bill, 
and  he  took  advantage  of  the  fact.  There  is  no 
standard  by  which  unusual  service,  involving  a 
high  quality  of  brain  work,  can  be  measured,  and 
in  such  a  case  an  eminent  counsel  or  physician  can 
charge  what  he  pleases.  Being  in  general  demand, 
he  may  refuse  employment,  and  the  client  or  patient 
knows  in  advance  that  his  services  will  be  costly. 
But  the  average  lawyer  or  doctor,  who  renders 
what  may  be  called  routine  service,  has  no  moral 
right  to  demand  exorbitant  sums  for  his  work, 
even  though  he  may  achieve  as  good  results  as  his 
more  distinguished  brother.  The  reason  is  obvious. 
When  a  leader  of  the  bar  is  retained,  the  client  has 
a  guarantee  that  he  is  getting  the  best  service  pos- 
sible. He  has  no  such  guarantee  if  he  employs  an 
humbler  man.  Why  then  should  he  pay  as  much? 
Reasonable  compensation  in  every  case  means  the 
amount  which  is  fair  for  a  man  of  given  standing 
in  the  profession.  The  ordinary  man  is  too  apt 
to  think  more  highly  of  himself  than  he  ought  to 
think,  and  should  be  careful  to  abstain  fr  iis  making 
charges,  wiiicii  are  entirely  proper  lui  a.  Uiuu  ui  liigher 
standing. 

And  now  a  word  in  conclusion,  as  to  the  necessity 
vi  moral  perceptions  on  the  part  of  a  lawyer.  The 
less  keen  are  the  moral  perceptions  of  n  oliont,  the 
more  should  be  those  of  his  legal  adviser.  FliC  aim 
of  the  latter  should  be  not  only  to  get  his  client  out 


LAWYER  AND  CLIENT 


69 


of  trouble,  but  to  keep  him  out.  In  the  long  run 
this  can  only  be  done  if  morality  is  brought  into 
the  business.  No  doubt  there  have  been  lawyers 
called  great,  who  put  moraUty  aside  in  attending 
to  their  client's  affairs,  but  they  were  not  truly 
great.  The  honorable  practice  of  the  law  tends  to 
make  a  man's  moral  perceptions  more  keen,  rather 
than  to  dull  them.  Law  is,  as  I  have  said,  applied 
morality,  and  if  one  is  to  be  a  useful  professor  in 
that  science,  he  must  himself  have  a  knowledge 
of  good  morals  and  ability  and  courage  to  apply 
them  in  a  given  case.  No  wise  lawyer  will  ever 
advise  a  client  to  pursue  a  morally  wrong  course, 
nor  countenance  him  in  so  doing.  No  cHent  in 
whose  service  an  upright  adviser  can  continue  with 
self-respect  will  ever  be  other  than  thankful  for 
sound  advice.  No  advice  can  in  the  long  run 
prove  sound  that  has  not  a  moral  basis. 

Such  are  the  ethics  of  my  profession  according 
to  an  ideal  standard;  and  no  man,  who  does  not 
mightily  strive  to  hold  fast  to  his  ideals,  can  hope 
to  lead  a  life,  which  shall  satisfy  his  soul.  In  no 
of]] or  way  can  the  hungry  soul  be  filled. 


I)r     ^^^" 


m 


m 


TRANSPORTATION 

CHAiiLES    A.    PROUTY 

I  AM  asked  to  speak  for  an  liour  upon  the  Etliies 
of  Traiis|)(»rtati(jii.  Since  the  only  transportation 
of  wliich  1  have  any  special  knowkni^e  is  by  rail- 
road, I  shall  confine  myself  to  that. 

The  steam  locomotive  was  first  developed  and 
steam  railroads  were  first  built  in  l^n<i;land.  The 
ori^iiinal  id(\i  was  to  provide  a  way  upon  which  the 
public  miiilit  operate  its  own  carriages.  The  rail- 
road was  to  l)e  like  the  turnpike  or  the  canal,  and 
just  as  any  individual  may  haul  his  barges  along 
the  canal  or  drive  his  wagons  over  the  turnpike 
upon  the  payment  of  an  established  toll,  so  members 
of  the  pul)lic  were  to  be  allowed  to  operate  their 
engines  and  cars  upon  tlu^  railroad,  i)aying  to  the 
owners  due  compensation  therefor. 

It  early  became  apparcMit,  however,  that  this  was 
not  feasible.  From  the  very  nature  of  the  service 
it  is  necessary  that  th(^  operation  of  a  railroad  shall 
be  exclusive,  and  from  this  it  has  come  to  pass  that 
the  sanu^  company  is  usually  tlu^  owner  and  opera- 
tor. My  subject  therefore  reduces  itself  to  this, 
:lie  Ktliics  of  Building  and  Operating  a  Railroad. 

At  the  threshold  of  every  discussion  of  this  kind, 
difTerentiating  this  business  from  most  other  kinds 

70 


TRANSPORTATION  71 

of  business,  Ues  the  fact  that  the  railroad  is  a  public 
servant.  The  government  gives  to  the  railway 
company  the  right  to  appropriate  your  land  against 
your  will.  This  is  because  the  public  requires  the 
service  which  the  railroad  is  to  perform,  and  hence 
your  interest  and  desire  must  give  w^ay  to  the  com- 
mon necessity.  A  railroad  is  a  monopoly.  You 
must  use  it  for  the  purpose  of  travel  and  of  trans- 
portation, and  you  must  pay  w^hatever  sum  is 
required  for  that  service.  The  public  may,  in  self- 
defense,  protect  itself  against  this  monopoly  of 
universal  use.  Just  as  the  highw^ay  is  a  necessity 
to  the  public,  so  the  railroad,  under  modern  commer- 
cial and  industrial  conditions,  is  equally  a  necessity. 
Many  countries  build  and  operate  their  ow^n  rail- 
roads. The  United  States  might  do  so,  but  has 
elected  to  delegate  that  duty  to  private  individuals. 

Whatever  the  reason,  of  the  fact  there  can  be  no 
doubt.  The  Supreme  Court  of  the  United  States 
long  ago  decided,  and  has  often  reaffirmed  the 
doctrine,  that  the  building  and  operating  of  a  rail- 
road is  a  public  function,  and  that  the  railroad 
when  built,  even  by  private  capital,  is  an  agent 
of  the  government  in  discharging  its  duty  to  pro- 
vide this  public  way. 

At  the  same  time  the  property  employed  in  this 
business  is  private.  Next  to  agriculture  the  amount 
invested  in  railroads  exceeds  that  in  any  other  kind 
of  business.  The  last  statistical  report  of  the  Inter- 
state Commerce  Commission  shows  the  capitaliza- 


IM 


70 


TPv  WSPOrvTATION 


tioii  of  our  railroatls  to  be  over  sixteen  billions  of 
dollars.     Some  donations  have  been  made  from  time 
to    time    bv    individuals    and    munieipalities.     The 
national    o;overnment    has    eontributed    very    con- 
considerable  sums  mainly  in  the  way  of  land  grants; 
|)ut    still   practically   all   of   this   enormous   amount 
lias   come   from   private   sources   and   has   been   in- 
vested  in  the  hojie  of  earning  a  return  from  the 
prosecution  of  th(^  business. 
/     This  dual   relation,    the   fact    that   the  service  is 
^  public  while  the  cai)ital   is  private,   makes  the  so- 
^  called  railroad  iH'oblem  difTicult   and  even  perilous. 
In  England  the  luiblic  character  of  the  railway 
has  been   recognized   from   the   first.     As  early   as 
ISot)  the  act  permitting  the  organization  of  railroad 
corporations  provided  that  they  should  treat  with- 
out  discrimination  all  nuunbers  of  tlie  public.     In 
the  United  States  it  has  l)(H>n  otherwise.     The  coun- 
try was  new  and  in  process  of  dev(^lopment.     Rail- 
roads   were    an    absolute    necessity.     Attempts    by 
the  states  to  build  and  operate  railroads  had  proved 
disastrous.     \\m(^i\  if  th(^  railroad  was  actually  built 
and  oi)erated,  thcM'e  was  little  inciuiry  at  first  as  to 
the  method  or  even  as  to  the  charge  made  for  the 

service. 

Olcott  V.  The  Supervisors,  10  Wallace  078,  in 
which  the  Supreme^  Court  of  the  United  States 
laid  down  the  doctrine  that  the  railroad  was  the 
agent  of  the  government  in  the  performance  of 
this  i)ublic  service,  was  decided  in  1873.     In  1876 


TRANSPORTATION 


73 


came  the  Granger  Cases,  affirming  the  right  of  the 
state  to  establish  the  charges  \vhich  a  railroad  ^ 
might  exact  for  its  transportation  services.  Never- 
theless, this  idea  continued  to  be  economic  and  legal  jl 
rather  than  practical.  Until  comparatively  recent 
times  our  railroads  have  been  not  servants,  but 
masters.  Only  when  the  abuses  became  so  glaring 
and  their  effects  so  important  that  they  could  no 
longer  be  overlooked,  did  the  public  give  practical 
effect  to  this  principle.  To-day  both  the  several 
states  and  the  United  States  do  in  fact  exercise  a 
considerable  measure  of  control  over  the  charges 
and  operations  of  railroads. 

This  public  character  of  the  railroad  must  be 
thoroughly  apprehended.  There  can  be  no  com- 
prehension of  the  right  and  wrong  of  these  matters 
otherwise.  The  railroad  magnate,  potent  as  he  is, 
must  acknowledge  in  the  government  of  the  United 
States  a  master.  The  railroad  employee,  w^hile  his 
first  allegiance  is  to  the  company  which  pays  him, 
should  also  understand  that  he  owts  a  certain  duty  H 
to  the  public.  Even  more  important  is  it  that  the 
people  themselves  should  realize  that  these  railw^ays 
are  their  servants;  that  as  such  they  should  not  be 
impeded  and  oppressed,  but  fostered  and  assisted. 

Keeping,  then,  always  in  mind  the  character  of 
the  service,  let  us  consider  the  building  and  equip- 
ping of  the  railroad,  including  the  getting  of  the 
money  therefor. 

It  is  probably  true  that  at  no  time  in  the  world's 


74 


TRANSPORTATION 


TRANSPORTATION 


75 


history   ha?   the   mere   i)c)ssession   of   groat   wealth 
mven\o  its  possessor  the  relative  distinction  which 
it  does  to-day.     Isaac  of  York  was  an  individual 
of    o-reat    conse(iu(Mice    in    his    generation;    but    he 
moved   in  a  (Htlerent    sphere  and  was  accorded   a 
different  sort  of  considcn-ation  from  that  which  his 
lineal   descendants    in   Wall    Street    to-day  receive. 
If  one  had  undertaken  50  year^  ago  to  name  our 
famous  men  he  would  liave  designated  the  orator, 
the    statesman,    the    author,    the    man   of    science; 
seldom  the  man  of  riches.     To-day  our  nulhonaires 
are  the  notable  and  influential  members  of  society. 
It   i^  their  movements  in   which   the  people   take 
interest  and  which  tlv^  newspapers  record. 

And  fur  this  there  is  a  very  substantial  reason. 
The  wealthy  men  of  to-day  have,  as  a  rule,  acciuired 
their  riches  bv  various  kinds  of  industrial  and  com- 
mercial activity.  They  have  built  railroads,  con- 
structed factories,  opened  mines,  given  employment 
to  thousands.  They  have  been  the  active  factors 
in  the  wonderful  material  development  of  this 
nation  in  recent  years.  We  are  to-day  the  foremost 
power  in  the  world  because  we  are  the  richest  and 
greatest  wealth-producing  country  in  the  world. 
It  is  natural  that  the  masses  should  deify  those 
men  whose  operations  have  made  us  great. 

There  is  inborn  in  most  men  a  desire  for  fame 
and  power.  It  is  altogether  natural  that  a  young 
man  standing  as  you  do  upon  the  threshold  of  life 
should   inquire  in  what   sphere  of  action  he   can 


exercise  the  most  potent  influence,  and  that,  so 
inquiring,  his  attention  should  be  turned  to  those 
occupations  in  which  great  wealth  has  been  accu- 
mulated. 

In  no  other  business  have  so  many  great  fortunes 
been  amassed  as  in  the  railroad  world.  In  no  other 
sphere  have  these  enormous  accumulations  come 
into  existence  almost  by  magic  as  here.  Those 
who  have  made  the  beginnings  in  other  fields  have 
multiplied  their  possessions  by  their  operations  in 
railroads  and  railroad  securities,  and  by  all  this  the 
young  man  is  attracted  to  this  sphere  of  activity. 

Now,  I  would  not  by  any  word  of  mine  discourage 
young  men  from  embarking  in  railroad  service. 
There  is  probably  no  better  field.  It  is  the  most 
important  of  all  commercial  industries.  The  charac- 
ter of  the  service  is  such  that  a  high  grade  of  ability  Jj 
is  required,  for  which  a  high  compensation  is  paid,  v 
The  calling  is  a  most  honorable  one.  The  very  fact 
that  it  is  quasi-public  in  its  character;  that  more 
than  any  other  business  it  immediately  concerns 
the  lives  and  the  property  of  the  whole  community, 
renders  it  an  occupation  of  the  highest  grade.  But 
the  young  man  should  thoroughly  understand  that 
the  conditions  of  yesterday  are  not  the  conditions 
of  to-day  and  will  be  still  less  those  of  to-morrow. 
He  should  not  enter  that  service  with  the  idea  of 
duplicating  the  experiences  of  the  past,  if  he  is  to 
square  his  conduct  with  any  proper  notion  of  right 
and  wrong. 


76 


TRANSPORTATION 


The  railroad  is  a  public  servant.     Its  only  income 
is  derived  from  the  charges  which  it  imposes  for 
the   performance    of    its    public    duty,    and    those 
charges  should  be  reasonable.     If  a  railroad  prop- 
erty  pays  an  extravagant  return,  it  is  usually  be- 
cause its  rates  are  unreasonably  high.     No  young 
man,  certainly,  should  embark  in  that  occupation 
with  the  expectation  of  imposing  upon  the  pubhc 
unlawful  and  unjust  charges  and  of  accumulatmg 
by  that  means  for  himself  or  his  stockholders  great 
profits.     He  may  properly  expect  a  handsome  com- 
pensation for  his  own  services  and  a  sure  return 
upon  the  investment  which  he  makes;  he  has  not 
the  same  right  to  obtain  here  as  in  private  business 

extravagant  returns.  i  ^     t      -. 

Still   more  to  the  point  is  this  thought:    Long 
ago  when  I  was  just  entering  upon  the  practice  of 
my  profession  up  in  Vermont,  I  inquired  of  a  legal 
friend  whether  his  brother  lawyer  who  had  grown 
rich  in  the  profession  had  made  his  monejr^.b^ 
practice.    My  friend  replied,  ^'By  his(^actie^ 
The  great  fortunes  which  have  been  accumiflated 
by  our  railroad  magnates  have  generally  come,  not 
as  the  product  of  railroad  building,  but  from  the 
various  practices  which  have  been  rife  m  the  past. 
There  has  been  the  construction  company,  watered 
stock,  consolidation,  reorganization,  the  manipula- 
tion of  the  stock  market,  and  so  on.    It  is  by  sucti 
means   that   these   enormous   fortunes   have   been 
accumulated. 


TRANSPORTATION 


77 


Consider  those  English  captains  of  the  sea  who 
roved  the  main  in  the  days  of  good  Queen  Bess. 
Sturdy  men  they  were.  They  turned  a  stream  of 
gold  into  the  coffers  of  England ;  they  made  the  name 
of  English  seamen  respected  in  all  quarters  of  the 
world;  their  own  names  are  embalmed  in  history  as 
the  potent  men  of  that  generation.  Were  these 
same  gentlemen  conducting  these  same  operations 
to-day  they  would  be  promptly  hung  as  pirates. 

So  with  our  modern  captains  of  industry.  They 
have  been  energetic  men;  their  work  has  been  of 
great  benefit  to  our  country.  It  may  be  that  in  no 
other  way,  for  instance,  could  our  railroads  have 
been  built;  but  none  the  less  many  of  them  have 
been  pirates  upon  the  sea  of  finance,  and  the  methods 
which  they  have  practised  will  not  be  tolerated 
in  time  to  come. 

These  changed  conditions  must  be  fully  appre- 
ciated by  the  young  man  who  embarks  in  railroad 
service  of  any  character.  Our  railroads  have,  for 
the  most  part,  been  built.  The  work  of  the  future 
lies  in  the  enlarging  and  perfecting  of  our  present 
systems.  For  that  a  different  kind  of  ability  is 
required.  The  railroad  magnate  of  the  half  century 
to  come  should  be  more  a  railroad  operator,  less  a 
stock  manipulator.  Bearing  in  mind  these  changed 
conditions,  let  me  indicate  some  of  the  rules  which 
in  my  opinion  should  determine  the  right  and  wrong 
of  building  and  financing  a  railroad. 

1.   No  railroad  should  be  built  which  is  not  neces- 


y 


78 


TRANSPORTATION 


sary.  In  the  past  railways  have  been  constructed 
for  various  purposes  besides  that  of  operating  at 
a  profit.  They  have  sometimes  been  built  for  the 
profit  to  some  construction  company  from  the  build- 
ing. They  have  sometimes  been  built  for  the  sole 
purpose  of  invading  the  territory  of  a  rival,  and 
thereby  forcing  down  the  value  of  the  property  of 
that  competitor,  so  as  to  compel  either  a  consolida- 
tion, a  lease,  or  a  sale  upon  terms  unduly  advanta- 
geous.    In  my  opinion  all  operations  of  this  sort 

are  morally  wrong. 

We  are  not  considering  the  ethics  of  competition. 
If  an  individual  sees  fit  with  his  private  capital  to 
construct  a  factory  which  can  be  of  no  benefit  to 
him  except  in  so  far  as  it  works  injury  to  his  rival, 
that  may  be  his  moral  right.  Certainly,  that  pos- 
sibility was  an  incident  in  view  of  which  the  invest- 
ment was  made,  and,  as  a  rule,  only  the  private 
capital  invested  is  interested. 

With  a  railroad  this  is  entirely  different.  Here 
is  a  public  institution.  The  property  invested  in 
that  enterprise  is  entitled  to  a  fair  return,  and  this 
return  is  derived  from  the  charges  which  the  public 
must  pay.  Generally,  that  particular  road  alone 
serves  a  given  conmaunity  and  if  the  service  be 
inadequate  the  whole  community  must  suffer.  It 
is  a  fundamental  proposition  that  whatever  tends 
to  enhance  the  actual  cost  of  performing  this  trans- 
portation service  is  detrimental  to  the  pubUc  which 
is  served. 


TRANSPORTATION 


79 


Let  us  assume  a  railroad  serving  a  certain  terri- 
tory. The  business  of  that  territory  is  sufficient  so 
that  this  railway  can  be  operated  in  an  efficient 
manner  at  reasonable  rates  and  with  a  suitable 
return  to  its  owners.  A  second  railroad  is  con- 
structed parallel  with  the  first.  The  advent  of 
this  second  carrier  does  not  increase  the  total  busi- 
ness to  be  done;  it  simply  divides  that  business 
between  two  competitors.  Those  expenses  of  opera- 
tion, which  may  be  termed  the  fixed  expenses  of  a 
railroad,  the  maintenance  of  its  way,  payment  of 
a  certain  part  of  its  employees,  have  been  increased 
twofold.  Broadly  stated,  twice  the  capital  is  now 
invested  in  serving  this  territory  which  is  actually 

needed. 

One  of  three  things  must  result.  Either  the  ser- 
vice will  degenerate,  or  the  charges  will  be  increased, 
or  the  owners  of  these  properties  will  receive  an 
inadequate  return ;  generally  all  three  of  these  things 
happen  in  a  degree. 

In  private  business  competition  with  all  its  harsh 
features  seems  necessary.  In  no  other  way  can 
the  public  be  protected  against  the  imposition  of 
unreasonable  prices;  but  with  the  railroad  the  gov- 
ernment itself  can  fix  the  charge  for  its  service, 
which  is  the  price  of  this  commodity,  and  can  pre- 
scribe the  character  of  the  service,  which  is  the 
quality  of  the  commodity. 

In  the  popular  apprehension  the  more  railroads 
the  better.    Such  is  not  the  fact.    Every  unneces- 


80 


TRANSPORTATION 


TRANSPORTATION 


81 


sary  mile  of  railroad  is  a  damage  to  the  public. 
Sound  thinkers  have  long  since  recognized  the 
truth  of  this  principle,  and  even  the  popular  mind 
is  beginning  to  grasp  it.  In  one  state  at  least  no 
railroad  can  be  constructed  until  public  authority 
after  intelligent  investigation  has  determined  that 
the  public  necessity  requires  it.  The  time  will 
come  when  positive  law  will  generally  so  provide; 
but  meanwhile,  without  the  inhibition  of  the  statute, 
the  promoter  of  a  railroad  should  recognize  and 
apply  this  truth,  and  wilful  failure  to  do  so  is,  in  my 
judgment,  a  breach  of  good  faith. 

2.  Every  railroad  should  be  honestly  built.  By 
this  I  mean  that  the  railroad  when  completed 
should  not  stand  the  company  which  owns  it  at 
more  than  the  actual  cost  of  its  economical  con- 

struction.  ^  i   •         i 

This  would  seem  to  be  axiomatic,  and  is  only 
referred  to  because  of  the  very  extensive  prevalence 
of  the  contrary  practice.  Numbers  of  railroads 
have  been  built  for  the  sole  purpose  of  enriching 
.,a  construction  company.  Even  when  the  work 
is  done  by  the  railroad  corporation  itself  there  is 
too  often  graft  in  every  direction:  commissions  to 
purchasing  agents,  purchases  from  concerns  owned 
by  railroad  officials,  numbers  of  devices  all  of  which 
go  to  swell  the  cost  of  the  property  beyond  what  it 

should  be.  i      •  ^       f 

Similar  practices  are  prevalent  in  all  kinds  of 

private  business;  but  find  their  fullest  expression 


k 


in  railway  operations.  The  capital  of  a  railroad 
corporation  is  usually  larger,  the  stockholders  are 
more  numerous,  there  is  not  the  same  sense  of  direct 
responsibility  upon  the  part  of  the  official,  and  his 
act  is  not  subject  to  the  same  scrutiny  as  in  case 
of  a  strictly  private  enterprise. 

I  beUeve  that  we  are  working  steadily  to  a  higher 
plane  in  this  respect;  but  even  to-day  there  is 
altogether  too  much  of  this  character.  These 
things  will  cease  when  the  pubHc  not  only  regards 
them  as  wrong,  but  treats  as  wrong-doers  those  who 
have  grown  rich  by  these  means.  When  you  brand 
a  man  as  a  malefactor  in  high  place  in  the  morning, 
invite  him  to  luncheon  at  noon,  and  call  him  into 
counsel  upon  the  state  of  the  nation  in  the  evening, 
the  moral  effect  of  the  whole  performance  is  weak- 
ened. With  respect  to  all  these  operations  to  which\^! 
I  refer,  when  men  are  not  only  termed  malefactors! 
but  treated  as  malefactors,  the  thing  will  stop.         1 

3.  The  capital  account  of  a  railroad  corporation  X 
should  represent  the  amount  of  money  actually 
invested.  No  dollar  of  stock  or  of  bonds  should 
be  issued  which  does  not  stand  for  a  dollar  paid 
into  the  property.  I  do  not  mean  that  a  bond  may 
not  be  sold  for  less  than  its  par  value;  for  that  may 
be  unavoidable;  but  so  far  as  possible  the  character 
of  the  security  should  be  such  and  the  rate  of 
interest  such  that  the  bond  will  be  handled  sub- 
stantially at  par.  The  object  should  be  to  make  the 
capital  account  of  a  railroad  represent  the  money 


82 


TRANSPORTATION 


which  has  been  actually  paid  into  that  concern  by 
outside  individuals.  All  those  devices  by  which  rail- 
road stocks  and  bonds  are  issued  without  a  present 
money  consideration  are  wrong. 

This  subject  is  too  broad  a  one  for  discussion  here; 
but  I  may  say  in  a  word  that  the  reasons  which 
support  this  proposition  are  of  two  classes.    The  first 
concerns  the  investing  pubUc.    The  capitaUzation  of 
a  corporation  does  not  of  course  affect  the  value 
of  the  property  of  that  corporation.     The  market 
price  of  the  stock  usually  recognizes  the  difference 
between  the  real  value  and  the  capitaUzation.     If 
the  value  were   accurately  known  so  that  buyers 
and  sellers  of  these  securities  might  understand  the 
relation  between  that  value  and  the  amount  of  the 
outstanding  stock,  there  would  be  no  objection  from 
the  standpoint  of  the  investor  to  overcapitalization. 
Ill  fact,  the  value  of  a  railroad  is  not  known;  the 
cost  of  constructing  it  is  not  known;  even  the  earn- 
ing power  of  the  property  is  an  uncertain  quantity 
and  has  been,  in  the  past,  subject  to  much  manipu- 
lation. 

Nothing  has  contributed  more  to  the  improper 
and  iniquitous  operations  upon  the  stock  market 
than  the  ability  to  issue,  ad  libitum  and  without 
present  money  consideration,  railroad  stocks  and 
securities.  Nothing  would  do  more  to  lend  cer- 
tainty to  the  value  of  railroad  stocks,  to  take  them 
out  of  the  domain  of  the  speculative  security  and 
make   them   an   investment   security,   which   they 


TRANSPORTATION 


83 


properly  are,  than  the  inability  to  so  manipulate 

them. 

The  second  reason  arises  out  of  the  public  charac- 
ter of  the  corporation.  We  have  already  seen  that 
the  private  property  invested  in  the  performance 
of  this  pubUc  duty  is  entitled  to  a  fair  return  upon 

its  fair  value. 

It  is  often  said  by  railroad  representatives  that 
rates  cannot  be  fixed  according  to  the  amount  of 
capital  stock  of  a  railroad;  and  this  is  true.    The 
rates  of  a  particular  railway  are  often  determined 
by  conditions  which  that  railway  does  not  control; 
but,  upon  the  other  hand,  railway  rates  as  a  whole 
should  be  largely  based  upon  the  fair  value  of  the 
property  used.     When,  as  to-day,  there  is  a  general 
assertion  upon  the  part  of  railroads  as  a  whole  that 
their  rates  must  be  advanced  in  order  to  yield  a 
suitable  income  upon  the  investment,  it  becomes 
material  to  know  what  is  the  fair  value  of  this 
property.    The  amount  of  money  actually  and  hon- 
estly put  into  the  enterprise  does  not  of  necessity  fix 
its  value;  but    the  highest   judicial  authority  has 
declared  that  this  is  one  of  the  important  elements 
which  should  be  taken  into  account.     The  one  thing 
in  this  complex  problem  which  can  be  known  with 
absolute  accuracy  from  now  on  is  the  amount  which 
is  actually  invested  in  the  enterprise;  and  that  thing 
should  be  known. 

It  is  urged  that  in  fixing  railway  rates  the  inno- 
cent holder  of  these  watered  stocks  must  be  con- 


84 


TRANSPORTATION 


TRANSPORTATION 


85 


sidered;  and  the  Interstate  Commerce  Commission 
has   so   decided.     He   has   bought   in   good   faith, 
without  notice  that  his  stock  represents  no  actual 
consideration,  and  it  would  be  an  act  of  injustice 
to  take  from  him  the  value  which  he  has  honestly 
purchased.     If    a    railroad    stock    sells    upon    the 
market  for  S500  a  share,  that  is  in  a  measure  notice 
to  the  purchaser  that  the  charges  of  that  corpora- 
tion are  excessive.     They  may  not  be.    The  rail- 
road may  be  so  situated  that  upon  reasonable  rates 
it  can  make  earnings  which  justify  this  value;  but, 
in  a  way,  the  man  who  pays  that  price  does  so 
with  notice.     The  transaction  is  entirely  different 
when  he  buys  without  knowledge  a  share  of  stock 
four  parts  of  which  are  water  and  pays  $100  for  it. 
In  time  the  origin  of  these  railroad  stocks  is  for- 
gotten an  1  the  stock  itself  is  dealt  with  as  it  stands. 
I  liave  l)(M  II  engaged  for  a  dozen  years  in  con- 
sidering how  railway  rates  can  be  fixed  so  as  to  do 
justice  between  the  public  and  the  railroad.     If  I 
were  to  name  to-day  that  thing  which  in  my  opinion 
w^ould  be  of  the  most  consequence  in  time  to  come 
I    should    say    absolute    control    over    the    capital 
account  of  this  public  servant.     When  no  security 
can  be  issued  by  a  railway  company  without  govern- 
ment  sanction;   when   all   new   stocks   and   bonds 
must   be   sold    at    the  market   price;   when   every 
dollar  received  from  the  sale  of  securities  or  from 
the  operation  of  the  property  must  be  used  in  operat- 
ing or  unproving  the  railroad  itself,  there  has  been 


laid  the  foundation  for  a  structure  in  time  to 
come  which  will  afford  one  reUable  indication  of 
the  rate  which  the  railway  should  be  allowed  to 

charge. 

Mr.  Harriman  says,  ''You  may  regulate  my 
charges  if  necessary;  but  you  should  let  alone  my 
financial  operations.''  The  most  conclusive  answer 
to  this  proposition  is  the  history  of  some  of  the  finan- 
cial operations  of  Mr.  Harriman  as  exhibited  in 
testimony  taken  before  the  Interstate  Commerce 
Commission. 

We  come  now  to  the  operation,  and  I  need  not 
say  here,  as  I  did  in  reference  to  the  building,  that 
the  strictest  honesty  and  economy  should  charac- 
terize every  transaction.  In  the  past  the  railroad 
has  been  the  fair  mark  for  any  kind  of  plunder. 
People  who  would  not  be  guilty  of  the  slightest 
dishonesty  in  their  deaUngs  with  private  individuals 
will  cheat  a  railroad;  and  this  same  notion  is  more 
or  less  prevalent  among  the  oflScials  and  employees 
of  the  railroad  itself. 

That  all  this  is  radically  dishonest ;  that  the  same 
rule  should  obtain  in  the  treatment  of  this  pul)lic 
service  corporation  which  obtains  in  dealings  be- 
tween private  individuals,  needs  no  confirmation, 
and  without  spending  time  in  commenting  upon  it 
I  bring  to  your  attention  two  matters  in  connec- 
tion with  the  operation  of  the  railroad. 

It  is,  in  the  first  place,  the  duty  of  a  railroad 
manager  to  operate  his  railroad  for  transportation 


86 


TRANSPORTATION 


purposes  and  to  use  his  railroad  funds  and  his  rail- 
road employees  for  no  other  purpose. 

Owing  to  the  public  character  of  the  service, 
railways  are  particularly  interested  in  the  acts  of 
the  government.  The  legislature  may  determine 
the  appliances  which  the  railroad  shall  use.  It 
may  fix  the  hours  of  service  of  its  employees.  It 
determines  the  kind  and  the  amount  of  taxes  which 
shall  be  imposed.  It  may  even  establish  the  rates 
which  the  railroad  can  charge.  Plainly,  therefore, 
it  is  of  great  importance  that  the  railroad  shall  be 
able  to  control  the  action  of  the  legislature. 

For  this  it  has  efficient  means.  Its  money  re- 
sources are  large.  Its  employees  are  numerous. 
In  tlii  i)ast  it  has  been  able  to  afford  free  transpor- 
tation, a  most  potent  means  of  political  influence, 
and  1}  concessions  in  its  rates  to  ronfor  the  most 
important  advantages. 

Thi^  poTTil/ination  of  inducemcnl  and  means  has 
IimI  the  railroail  to  take  an  activo  intoro^t  in  politics. 
It  ha-  (^!iart(Mi  statutes,  apixanted  judges,  elected 
governors,  and  vvrw  ])rc-i<l(nits. 

T\\\<  political  arti\iiy  i-  ju-tined  by  the  railroad 
manager  upon  the  tlieory  tliat  in  no  other  way  can 
his  property  Ix^  protectc^l  again>t  nnjust  assaults. 
The  private  individnal  may  un(lonl)t(Hlly  contribute 
to  legitimate  politi<'al  campaign  expenses.  It  is 
possible  that  a  privat(^  (■()r|)()ration  whose  property 
is  |)rivate  in  it-  u-i'  and  v.h<)-(>  will  is  that  of  the 
majority  of  its  stockholders  may  i)roperly  contribute 


TRANSPORTATION 


87 


i 


*Sllii 

;|  ill!' 


in  like  manner.  It  may  conceive  that  its  pecuniary 
interest  is  so  far  involved  in  the  success  of  a  political 
party  or  a  political  idea  that  it  is  justified  in  using 
its  funds  to  assist  the  party  or  promote  the  measure. 
This  is  a  matter  the  ethics  of  which  I  am  not  now 
discussing.  The  court  of  final  resort  in  New  York 
has  held  that  it  is  not  a  criminal  act  for  the  officers 
of  an  insurance  company  to  pay  out  of  the  funds 
of  that  company  a  contribution  to  one  of  the  national 
political  parties. 

However  that  may  be  wdth  a  private  corporation, 
a  railroad  company  has  no  right  to  use  its  funds 
for  such  purposes.  That  corporation  by  reason  of 
its  public  nature  stands  in  a  way  as  a  trustee  for 
the  whole  people.  The  funds  themselves  come  from 
the  people.  The  function  of  this  public  servant 
is  transportation,  not  government. 

Some  time  ago  in  the  course  of  testimony  taken 
before  the  Interstate  Commerce  Commission  under 
resolution  of  Congress,  in  reference  to  the  proceed- 
ings of  the  Standard  Oil  Company,  it  turned  out 
that  that  corporation,  among  other  practices,  was 
accustomed  to  buy  space  in  newspapers,  for  which 
it  paid  at  advertising  rates  and  which  it  was  allowed 
to  fill  with  news  matter.  Sometimes  this  paid 
matter  found  its  way  into  the  editorial  columns. 
To  my  mind,  among  all  the  devious  practices  upon 
the  part  of  that  so-called  trust  which  were  revealed 
in  that  investigation,  none  was  more  dangerous 
than  this.     To  permit   a  concern  like  that  to  fill 


y 


88 


TRANSPORTATION 


TRANSPORTATION 


89 


the  columns  of  the  public  press  with  statements  of 
fact  and  statements  of  opinion  supposed  to  be  from 
disinterested  sources  is  to  poison  the  very  fountams 

themselves. 

A  railroad  may  properly  state  its  case  to  the  pub- 
lic, and,  under  many  circumstances,  should  use  its 
funds  for  that  purpose;  but  let  it  be  in  the  open 
over  its  own  si<i;uature. 

Ill  the  second  i)Uice,  the  railroad  manager  should 
operate  his  property  for  the  convenience  of  the 
public  and  with  uniform  consideration  of  the  public. 

We  coinr  l)ack  always  to  the  sanu^  proposition: 
the  railway  is  a  public  servant,  and  while  it  is  en- 
titled to  just  earnin<j;s  upon  the  capital  employed, 
the  maimer  of  those  earnin,i!;s  must  1)0  rej2;ulated  in 
view  of  the  i)ublie  interest,  llic  estal)lishment  of 
its  re<i;ulations,  the  arrangement  of  its  schedules, 
the  operation  of  its  trains,  should  all  be  in  this  view. 

A  railroad  is  a  monopoly.  The  passenger  must 
use  its  train,  must  pay  for  the  time  being  the  fare 
required,  and  must  submit  to  the  regulation  im- 
posed. He  has  no  direct  voice  in  determining  any 
of  these  things.  This  circumstance  leads  him  to 
view  with  suspicion  and  dissatisfaction  the  acts  of 
the  railway,  and  furnishes  the  strongest  possible 
reason  wliy  the  greatest  care  should  be  exercised  in 
the  first  instance  in  establishing  the  rule  and  the 
rate,  and  why  any  criticism  should  be  carefully 
considercMl. 

The  politic  railway   manager  will  satisfy   many 


unreasonable  demands.  He  will  remember  that  the 
public  is  ignorant  and  must  be  instructed;  that  it 
is  unreasonable  and  must  be  patiently  borne  with. 
The  raihoad  employee  should  observe  uniform 
courtesy  toward  the  public.  Courtesy  pays  in 
private  business,  and  is  insisted  upon  by  the  private 
employer;  in  this  public  service  it  is  a  duty.  This 
should  be  the  rule  among  all  railroad  employees 
from  the  highest  to  the  lowest.  The  millionaire 
traveling  in  his  private  car  is  entitled  to  no  greater 
consideration  than  the  poor  woman  with  her  bundles 
and  her  babies. 

In  the  last  dozen  years  my  duties  have  taken  me 
over  all  the  great  railway  systems  of  this  country 
and  into  every  state  and  territory  many  times.  I 
have  been  interested  to  observe  the  attitude  of  the 
railway  employee  to  the  public,  and  of  the  pubhc 
to  the  railroad.  While  I  have  usually  been  able 
to  commend  the  treatment  accorded  to  the  pubhc, 
I    have   observed   many  striking   examples  to   the 

contrary. 

You  may  think  that  all  this  goes  to  the  amenities 
rather  than  to  the  ethics  of  transportation;  that 
matters  of  this  sort  are  too  trivial  to  occupy  atten- 
tion in  this  place.  Not  so.  It  can  never  be  of 
little  consequence  in  any  walk  of  life  to  fail  in  that 
thing  which  good  conduct  and  good  conscience 
require.  But  here  this  relation  of  the  railway  to 
the  public  is  a  matter  of  paramount  consequence. 

The    passenger  upon  the  train  may  be  for  the 


TRANSPORTATION 


91 


90 


TRANSPORTATION 


moment  entirely  sub jof^t  to  the  dietatioii  of  the  rail- 
way; but  there  comes  a  time  when,  stauciing  at  the 
polls  or  in  the   jury  box,  lie  is  the  master.     I  am 
convineed  that  nothing  is  more  responsible  for  what 
injustice  has  l)een   done   raih'oads  by  juries  and   by 
legislatures  than  tins  pubhc-be-damned   attitude  of 
too  many  railroad  manan;ers  and  railroad  em})loyees. 
Not   long  ago  the  |)r(^sident   of  one  of  our  great 
systems  said  to  me  that  in  his  judgment   railroads 
would  l)e  compelled  to  look  iov  the  protection  of 
their  properties  to  the  constitution  and  the  courts; 
that  the  people,  if  they  were  free  to  exercise  their 
will,  would  virtually  confiscate  our  railroads.      Did 
this  gentleman  forget  that  courts  and  constitutions 
as  well  as  legislatures  are  in  this  land  of  ours  crea- 
tures of  the  people?   The  constitution  was  made  and 
can  be  unmade.     (Courts  may  stand  l)etween  the  rail- 
road and  any  temporary  invasion  of  its  right.    They 
cannot  defeat  a  settled  purpose  upon  the  part  of  the 
voters  of  this  country. 

Th(T(^  are  times  when  the  railway  must  appeal 
to  the  court  for  ])rotection  against  the  acts  of  the 
legislature  and  the  conunission.  When  that  time 
comes  the  appeal  should  be  made  and  the  court 
should  fearlessly  discharge  its  duty  in  dealing  with 
that  appeal,  l^ut,  as  a  matter  of  i)olicy  if  not  of 
ethics,  this  course  should  be  taken  only  as  a  last 
resort.  When  a  court  of  the  United  States  sets 
aside  a  statute  enacted  by  the  supreme  authority 
of  a  state,  some  temporary  benefit  may  accrue  to 


I 


the  railway;  but  there  remains  a  bitter  taste  in 
the  mouth  of  the  voter  and  a  rankling  in  his  heart 
which  sooner  or  later  are  likely  to  find  expression 
in  ways  against  w^hich  no  court  can  grant  protection. 

Railroads  have  protected  themselves  in  times  gone 
by  by  controlling  courts  and  legislatures.  One 
methoH'of  protection  has  seldom,  if  ever,  been  tried, 
and  that  is  an  honest  appeal  to  the  voters  them- 
selves. Some  railways  are  beginning  to  resort  to 
this  expedient.  I  have  in  mind  one  railroad  presi- 
dent operating  extensively  in  a  section  of  the  country 
where  legislation  has  been  thought  to  be  the  most  hos- 
tile, who  loses  no  opportunity  to  lay  before  the  com- 
munities wdiich  he  serves  the  necessities  of  his  road.  \ 
I  can  but  believe  that  this  method  if  persisted  in  j 
will  wan;  and  that  no  other  method  finally  can. 

Now  in  cultivating  a  proper  spirit  upon  the  part 
of  the  people  toward  the  railway,  nothing  can  be 
more  important  than  the  uniform  consideration  of 
the  public  in  these  relatively  minor  matters.  If  I 
were  a  railroad  president  I  would  insist,  first  of 
all,  upon  unvarying  courtsey  upon  the  part  of  my 
subordinates  from  the  highest  to  the  lowest;  for  no 
other  failure  of  duty  would  I  more  severely  dis- 
cipline an  employee.  I  would  see  that  every  com- 
plaint w\as  promptly  and  efTectively  dealt  with. 

We  come  finally  to  the  charges  which  may  be 
imposed  by  the  railroad  for  the  service  rendered 
to  the  public.  Are  there  any  ethical  limitations 
upon  these  charges? 


^ 


K 


92 


TIUNSPORTATION 


Its  vi\\c^  are  a  most  vital  Wnw^  to  tho  railway. 
/  It  is  ior  the  soU^  purpose  of  ('har<!;in,ij;  these  rates  that 
the  railroad  is  buili  and  uperated.  Whatever 
affects  tiie  amount  of  tliese  charges  touches  in  its 
tenderest  point  the  welfare  (^f  the  railroad  corpora- 
tion. From  the  standpoint  of  the  railway  itself 
this  matter  is  of  supreme  consequence. 

Of  eciual  consecjuence  is  it  to  the  public.  Except 
what  a  man  digs  in  his  own  garden,  almost  every 
article  which  he  puts  into  his  mouth  or  upon  his 
back,  which  enters  into  the  necessity  or  the  comfort 
of  his  daily  life,  has  been  the  subject  of  transporta- 
tion by  rail  and  has  contributed  its  part  of  the  rail- 
way charge. 

These  charges  have  sometimes  been  termed  a 
transportation  tax,  and  while  the  expression  is  not 
strictly  accurate,  the  analogy  is  close.  They  are 
in  essence  a  tax  paid  l)y  every  oilier  species  of 
property  to  tliat  kind  of  ])roperty  wliich  is  invested 
in  the  rendering  of  tlie  transportation  service.  If 
too  liigli,  these  charges  are  a  most  insidious  means 
for  taking  unjustly  from  the  masses  and  transferring 
to  the  few.  One  cent  per  ton  ui)on  the  tons  of 
freiG;ht  handled  for  the  year  ending  June  My  19U7, 
would  amount  to  almost  ?lS,000,On(). 

Equally  important  is  the  relation  in  rates.  The 
railroad  rate  determines  who  shall  <!'>  business  and 
where  it  shall  be  done;  where  coal  shall  be  mined; 
where  flour  shall  be  ground;  wliere  cities  shall  be 
built.     Had  T  the  time  it  would  be  prohtable  and 


TRANSP(3RTATI0N 


93 


perhaps  more  entertaining  than  my  present  subject 
if  I  were  to  show  you  by  actual  illustration  and  in 
greater  detail  the  truth  of  these  statements.  I 
must,  however,  ask  you  to  accept  my  statement 
that  in  the  rate  is  centered  the  interest,  in  the  main, 
both  of  the  public  and  of  the  railway. 

Every  one  w^ho  has  given  even  superficial  con- 
sideration to  the  matter  of  railway  charges  knows 
that  they  present  themselves  in  two  aspects.  There 
is,  first,  the  inquiry  whether  the  rates  are  too  high 
for  the  service  rendered,  without  reference  to  the 
charges  made  for  other  similar  services;  and  there 
is,  in  the  second  place,  the  question  whether  the 
relation  between  the  charges  imposed  for  the  per- 
formance of  similar  services  with  respect  to  different 
individuals  or  difTerent  commodities  is  just.  We 
will  consider  first  what  may  be  termed  the  absolute 
rate;  finally,  the  relative  rate. 

Those  of  you  familiar  with  the  De  Officiis  of 
Cicero  will  recollect  that  he  suggests  several  in- 
stances in  which  the  owner  of  property  ought  not 
to  exact  for  its  sale  the  highest  price  obtainable. 
Whatever  may  be  your  opinion  of  the  cases  pro- 
poimded  by  this  philosopher,  certainly  the  general 
rule  is  quite  otherwise.  The  private  individual 
may  ask  for  his  property  or  his  services  whatever 
he  lists.  They  belong  to  him  and  he  may  keep  them 
or  he  may  dispose  of  them,  and  to  whomsoever  and 
for  whatever  he  sees  fit. 

Not  so  with  the  railroad,  which  must  serve  all 


€14 


TRANSPORTATION 


persons  alike,  whether  it  wills  or  not  •  and  which 
must  make  for  those  services  a  reasonable  charge. 
Plainly,  therefore,  it  is  opposed  to  good  conscience  to 
exact  a  rate  which  is  unreasonable  or  discriminatory. 
While  this  statement  is  unexceptionable  in  the 
abstract,  it  is  extremely  difficult  of  application  ^ 
the  concrete  for  the  reason  that  it  is  most  difficult 
to  determine  what  is  an  unjust  and  an  unreasonable 
railway  rate.    The  government  sometimes  fixes  the 
charge,  and  thus  in  that  mstance  determines  the 
matter;  but  formerly  in  all  cases,  and  to-day  with 
respect  to  the  bulk  of  railroad  transportation    the 
carrier  is  free  to  fix,  in  the  first  instance  at  least, 
its  own  rates.    By  what  standard  can  the  justice 
of  those  rates  be  measured? 

If  a  railroad  was  constructed  for  the  purpose  of 
transporting  a  shigle  commodity  between  two  given 
points   and   wa^   .  ugaged   hi    no   other  service,   an 
an.wor   to    Has   question    would    hv    comparatively 
easv      It   would  ho  pn-iMo  to  dcUTiuiiii'  tlie  cost 
of  ihe  Dhint    and  the  exprn^.  of  the  oprratioii  and 
in  that'wuy  to  arrivo  with  iva^onable  sati^fartioa 
at  aiti^t  rate.     In  artual  |u-arlire  this  is  m  no  wise 
thp  r.^..     llaih-oads  <^rnrTally  enga-o  m  the  trans- 
p.,,ation  of  both  pa..cng(TS  and  property,  ancUhe 
pn.perrv    in   partinilar  is  offered   in   every   variety 
of  form  and  undrr  all  ronditions.     It   i-  sonu^tnn.s 
hoavv   and   otlicr   unies   light;  sometimes  of   ^n.it 
and  'at    otl.r   timo.   of   littl.   value.     In   <omr   in- 
stances the  cost  of  transi.ortation  is  of  littlo  c  onse- 


TRANSPORTATION 


95 


quence  in  comparison  with  the  value  of  the  article, 
while  in  other  cases  the  price  of  carriage  may  abso- 
lutely control  all  deahngs  in  the  commodity.  The 
problem,  therefore,  of  figuring  out  a  reasonable 
rate  becomes  a  well-nigh  impossible  one.  Even 
were  it  possible  to  determine  what  the  total  receipts 
of  a  railway  company  ought  to  be,  it  would  be 
impossible  to  distribute  that  amount  among  the 
various  commodities  actually  handled. 

Some  years  ago,  in  examining  the  traffic  official 
of  one  of  the  great  railroad  systems  of  this  country, 
I  asked  him  to  state  the  basis  upon  wlnchjhe  rates 
of  his  company  were  fedT'^lffferl^^  one 

measure  of  reasonableness  after  another  and  finding 
that  none  of  them  would  stand  the  test  of  an  actual 
application  to  his  various  rates,  he  finally  said,  in 
despair:  ^'To  be  perfectly  honest,  we  get  all  we  can, 
and  even  that  is  too  httle.'' 

I  think  this  gentleman  pretty  accurately  stated, 
in  this  sentence,  the  manner  in  which  the  railroad 
rates  of  this  country  have  been  made  in  recent 
years.  They  are  as  high  as  they  could  be,  and  most 
railroad  operators  have  honestly  felt  that  even  so 
they  were  too  low.  It  was  because  the  competitive 
conditions  which  had  fixed  rates  in  years  gone  by 
were  fast  disappearing  under  the  influence  of  com- 
bination, that  the  country  was  aroused  to  the  neces- 
sity of  taking  measures  to  protect  itself  against  an 
unjust  increase  when  these  competitive  conditions 
had  disappeared. 


96 


TRANSPORTATION 


TRANSPORTATION 


97 


The  thoughtful  traffic  manager  who  gave  honest 
expression  to  his  belief  would  probably  state  that 
the  rule  of  most  universal  application  which  governs 
him  in  the  making  of  his  rates  is  that  expressed  by 
the  phrase,  ''what  the  traffic  will  bear/'  So  long  as 
business  moves  freely  his  rates  are  just.  When  the 
movement  stops  he  begins  to  examine  the  propriety 
of  his  charges.  This  is  the  only  ethical  obhgation 
which  he  acknowledges. 

'"What  the  traffic  will  bear''  is  an  obnoxious 
phrase.  There  is  about  it  an  odor  of  extortion.  For 
one  who  can  charge  anything  he  pleases,  to  take  all 
he  can  get  strikes  the  ordinary  mind  as  outrageous, 
I  am  not  certain,  however,  but  that  the  rule  as  prop- 
erly applied  and  understood  is  a  valuable  one,  and 
that  the  traffic  official  may  apply  it  without  justly 
subjecting  himself  to  the  charge  of  wrong-doing. 
Let  me  illustrate  just  what  the  meaning  of  this 
phrase  is  in  its  general  application. 

I  am  the  manager  of  a  railroad  extending  250 
miles,  from  A  to  B.  At  C,  a  distance  of  50  miles 
from  A,  is  located  a  coal  mine,  at  which  the  cost 
of  placing  the  coal  upon  the  cars  is  one  dollar  per 
ton.  Coal  of  that  grade  sells  in  the  open  market 
at  A  for  $2.25  per  ton.  I  establish  a  rate  of  one 
dollar  per  ton  for  the  handling  of  that  coal  for  a 
distance  of  50  miles. 

This  is  certainly  a  liberal  rate;  but  the  earnings 
of  my  road  as  a  whole  are  not  excessive;  nor  can 
the  rate  itself,  five  cents  per  100  pounds,  be  regarded 


as  extortionate.  The  owner  of  the  mine  is  per- 
fectly satisfied,  for  he  is  making  a  magnificent 
profit  upon  the  operation  of  his  property.  A  is  a 
prosperous  community  buying  its  coal  cheaper 
than  most  communities. 

I  resign  as  manager  of  this  road  and  become  the 
manager  of  another  road  extending  in  the  opposite 
direction  from  A,  250  miles  to  X.  The  two  roads 
are  in  all  respects  identical,  the  cost  of  construction, 
capitalization,  business  —  everything  is  substantially 
the  same. 

At  X  is  located  a  coal  mine  precisely  similar  to 
that  at  C.  The  cost  of  producing  coal  upon  the 
cars  is  one  dollar  per  ton,  and  the  coal  will  sell  in 
the  market  at  A  for  $2.25  per  ton.  I  establish  a 
rate  for  the  haul  of  250  miles  of  $1.15  per  ton. 

Now,  have  I  in  these  two  cases  been  guilty  of 
any  wrong?  In  the  first  instance  everybody  is  satis- 
fied; everybody  is  prosperous.  In  the  second  case, 
the  mine  at  X  is  not  as  prosperous  as  the  one  at 
C,  for  the  profit  of  the  miner  at  C  is  two  and  one- 
half  times  as  great;  but  still  the  miner  at  X  operates 
to  advantage  upon  a  profit  of  ten  cents  per  ton.  The 
return  to  my  railroad  is  not  satisfactory  under  the 
rate  of  $1.15;  but  that  figure  is  better  than  nothing 
at  all.  In  other  words,  the  traffic  will  bear  one  dol- 
lar in  one  case  and  $1.15  in  the  other;  therefore,  I 
impose  one  dollar  in  the  first  case  and  $1.15  in  the 
second  case.  Nor  does  it  seem  to  me  that  the 
traffic  manager  can  be  accused  either  of  inconsist- 


li 


1 1 1 


98 


TRANSPORTATION 


ency  or  of  moral  dereliction  who  establishes  rates 
as  suggested  in  this  illustration. 

The  case  which  I  have  put  is  an  extreme  one; 
but  it  illustrates  the  principles  under  which  the  rail- 
road tariffs  of  this  country  have  been  developed. 
The  study  of  the  traffic  manager  has  been  to  get 
business,  and  he  has  made  such  rates  as  were  neces- 
sary to  secure  that  business.  The  rates  actually 
made  in  pursuance  of  this  idea  have  been  often  in- 
consistent and  have  provoked  severe  criticism.  It 
does  not  seem  to  me  that  the  application  of  the  prin- 
ciple is  of  necessity  wrong.  Upon  the  contrary,  its 
application,  within  reasonable  bounds,  is  healthy 
both  for  the  railway  and  for  the  community. 

I  have  said  that  the  capitalization  of  a  railway 
ought  to  represent  the  money  actually  invested. 
Ordinarily,  the  dividends  paid  upon  the  capital 
stock  ought  not  to  be  extravagant.  Mr.  Hill  said 
in  giving  testimony  before  the  Commission  that 
seven  per  cent  was  enough.  I  think  he  is  right. 
Only  in  extreme  cases  would  a  larger  dividend  be 

justified. 

So  long  as  there  is  no  overcapitalization,  and  so 
long  as  the  rate  of  dividend  is  a  reasonable  one,  I 
do  not  feel  that  there  can  be  much  danger  of  the 
rate  being  inherently  too  high  under  conditions  as 
they  actually  exist  and  have  existed  in  most  parts 
of  this  country.  If  the  earnings  of  the  railroad 
are  actually  invested  in  the  improvement  of  the 
property  no  great  injustice  has  transpired.    What- 


TRANSPORTATION 


99 


ever  has  been  taken  from  the  pubUc  is  still  subject 
to  the  public  control,  and  while  a  scale  of  rates 
which  permits  of  the  betterment  of  the  property  out 
of  the  earnings  may  impose  upon  the  present  gen- 
eration a  tax  somewhat  higher  than  is  strictly  just, 
still  so  long  as  we  pay  it  without  inconvenience  no 
great  harm  is  being  done.  Instances  might  of 
course  be  imagined  where  rates  have  been  so  ex- 
tortionate as  to  justify  censure  of  the  person  who 
imposed  them;  few  cases  of  that  kind  have  fallen 
under  my  observation;  and  I  imagine  them  to  be 
extremely  rare. 

There  are  many  uncertainties  in  the  manage- 
ment of  a  railway.  The  volume  of  business  and 
the  expense  of  operation  vary.  The  demands  of 
the  public  for  improvements  which  do  not  produce 
increased  business  are  ever  growing.  The  evolu- 
tion of  new  railroad  methods  renders  useless  the 
old.  So  long  as  the  charges  are  paid  without  incon- 
venience by  the  public ;  so  long  as  the  traffic  moves, 
there  is  not  much  danger  that  rates  will  become  per- 
manently too  high,  provided  we  can  control  the 
capital  account  and  know,  therefore,  the  return  which 
is  actually  paid  in  cash  upon  the  cash  investment. 

With  the  relative  rate  this  is  entirely  different. 
Let  me  illustrate  my  meaning  by  an  example  here, 
taking  for  that  purpose  the  railroad  A  B  and  assum- 
ing that  two  mines  are  located  at  C.  From  mine 
No.  1  coal  can  be  put  upon  the  cars  for  one  dollar 
per  ton,  and  it  sells  in  A  at  $2.25  per  ton.     From 


100 


TRANSPORTATION 


mine  No.  2  the  cost  of  producing  coal  is  $1.25  upon 
the  cars,  and  the  quaUty  of  the  coal  being  poorer 
it  sells  in  the  market  for  but  two  dollars  per  ton. 

What  may  the  railroad  do  under  these  circum- 
stances? May  it  impose  the  rate  of  one  dollar 
upon  the  coal  from  mine  No.  1  and  a  rate  of  fifty 
cents  upon  the  coal  from  mine  No.  2,  thereby 
equalizing  the  profits  of  the  two  mines? 

I  think  not.  The  cost  of  transporting  that  coal 
is  the  same;  the  service  which  the  company  renders 
to  these  two  individuals  is  the  same.  The  value 
of  that  service  may  be  somewhat  less  to  the  miner 
whose  coal  is  worth  but  two  dollars  than  to  the  miner 
whose  coal  is  worth  S2.25,  and  possibly  this  differ- 
ence in  value  may  properly  find  expression  in  some 
slight  difference  in  the  rate;  but  certainly  the  rail- 
way has  no  right  to  take  up  in  its  tariffs  this 
difference  in  operating  cost  of  the  mine  and  quality 
of  the  coal. 

To  admit  of  any  such  right  upon  the  part  of  the 
railway  would  be  to  concede  that  railways,  by  the 
establishment  of  their  rates,  may  equaUze,  enhance, 
or  utterly  destroy  all  natural  advantages.  If  the 
railroad  can  by  its  rate  make  the  coal  of  mine 
No.  2  equal  to  the  coal  of  mine  No.  1  in  the  ground, 
then  there  is  no  such  thing  as  a  natural  value. 
Everything  depends  upon  the  whim  of  a  particular 
railway;  or,  if  the  rates  are  to  be  revised,  upon  the 
whim  of  the  body  which  finally  decides. 

In  my  opinion  the  traffic  official  has  little,  if  any, 


TRANSPORTATION 


101 


latitude  in  case  of  the  relative  rate.  It  is  his  abso- 
lute duty  to  treat  all  shippers  alike.  Voluntary 
discrimination  of  any  sort  between  his  patrons  is 
wrong.  A  railroad  has  a  very  wide  latitude  with 
the  absolute  rate  in  the  development  of  its  business; 
it  has  no  such  license  with  the  relative  rate. 

I  am  aware  that  the  contrary  has  been  often 
affirmed  in  actual  practice.  I  know  that  there  are 
numbers  of  rates  now  in  effect  which  utterly  violate 
this  rule,  which  could  not  with  propriety  be  dis- 
turbed. It  would  be  easy  to  suggest  conditions 
and  absurdities  which  might  arise  in  the  appUcation 
of  such  a  rule,  and  still  I  myself  believe  that  there 
is  no  more  essential  principle  in  the  administration 
of  our  railroads  than  this.  So  far  as  can  be  absolute 
equaUty  must  be  done  between  competing  individ- 
uals and  competing  commodities  and  localities. 

I  should  fall  short  of  my  duty  in  presenting  this 
subject  if  I  did  not  spend  a  moment  in  suggesting 
to  you  what  may  be  termed  the  obverse  side  of  this 
question.  None  of  you  may  "Tdc  either  railway 
magnates  or  railway  employees;  you  will  all  be 
citizens  of  the  United  States  and  charged,  as  such, 
with  the  responsibiUty  of  dealing  with  this  problem. 

I  have  endeavored  to  impress  upon  you  that  the 
railway  is  a  public  servant,  and  that,  as  a  public 
servant,  it  owes  certain  duties  to  its  master;  I  would 
impress  it  upon  you  with  equal  force  that  the  public 
as  master  owes  certain  duties  to  its  servant. 

It  has  already  been  observed  that  the  railway  is 


102 


TRANSPORTATION 


apt  to  be  considered  a  fair  mark  for  plunder;  and  the 
same  idea  finds  unconscious  expression  in  the  atti- 
tude of  the  public  toward  the  railroad  in  many 
matters  of  governmental  regulation.  The  people 
of  this  country  as  a  whole  have  no  desire  to  oppress 
its  railways  or  to  do  injustice  to  that  species  of 
property.  In  the  past  the  railroad  has  been  the 
aggressor;  it  has  by  its  own  conduct  compelled  the 
public  to  assert  itself;  but  there  is  to-day  the  very 
gravest  apprehension  that  the  pendulum  may  swing 
too  far  the  other  way. 

The  money  investment  in  our  railroads  has  been 
put  there  for  the  purpose  of  earning  a  return.  Just 
as  there  is  upon  the  part  of  the  railway  itself  an 
implied  promise  to  the  people  that  its  services 
shall  be  rendered  for  a  reasonable  charge,  so  there 
is,  upon  the  part  of  the  people,  an  implied  promise 
that  this  property  shall  be  allowed  to  make  such 
charges  as  will  yield  to  it  fair  compensation. 

The  form  of  this  investment  is  such  that  it  can- 
not be  withdrawn.  Private  capital  can  usually  be 
taken  out  of  private  enterprise.  The  property  can 
be  sold  or  removed  to  other  fields  of  activity.  Not 
so  the  railroad.  It  must  be  used  where  it  is  and  for 
that  purpose,  or  it  is  worthless.  Whatever  prevents 
it  in  that  form  from  earning  a  fair  return  virtually 
confiscates  the  property. 

It  may  be,  and  is  true,  that  vast  fortunes  have 
been  accumulated  by  improper  manipulations  of 
railroad  properties  and  railroad  securities;  but  the 


TRANSPORTATION 


103 


men  who  have  accumulated  those  fortunes  for  the 
most  part  no  longer  own  the  securities.  The  owners 
of  our  railway  stocks  to-day  are  mainly  innocent 
purchasers  who  hold  them  for  value  paid.  To 
impair  the  value  of  these  stocks  would  not  punish 
the  persons  who  have  improperly  profited  by  these 
transactions  in  the  past.  Justice  requires  that  we 
deal  with  this  problem  mainly  as  it  is  and  that 
we  do  not  impose  upon  railway  capital  such  limita- 
tions as  will  prevent  it  from  making  a  suitable  return 
by  reason  of  what  has  already  happened. 

The  government  might  have  built  and  operated 
its  own  railways,  but  instead  of  doing  so  it  has 
invited  private  capital  to  discharge  for  it  this  public 
function,  upon  the  assurance  that  such  capital  shall 
be  allowed  to  exact  a  fair  compensation  for  the  ser- 
vice. Nothing  can  be  more  unjust  than  to  deny  to 
this  capital  that  right. 

Not  only  does  a  sense  of  justice  require  this; 
self-interest  also  dictates  it.  The  railroads  of  this 
country  must,  in  the  immediate  future,  be  very 
largely  extended  and  improved;  additional  facihties 
must  be  provided  to  meet  the  increased  demands 
which  will  be  made.  This  will  require  the  outlay 
of  vast  sums  of  capital;  and  this  capital  must 
come  mainly,  not  from  the  earnings  of  the  railroad, 
but  from  the  investing  public.  We  can  provide 
by  legislation  the  sort  of  cars  which  a  railroad 
shall  use  and  the  rates  which  it  shall  impose;  we 
cannot  by   legislation   force   one    single   dollar    of 


104 


TRANSPORTATION 


private  capital  into  railroad  mvestment  against 
its  will. 

Capital  will  seek  investment  in  this  field  for 
exactly  the  same  reason  that  it  will  in  any  other; 
namely,  upon  the  expectation  of  making  a  profit  out 
of  the  investment.  It  is  not  necessary  that  the  re- 
turn should  be  large;  but  it  is  necessary  that  it 
should  be  certain;  that  the  people  who  put  their 
money  into  this  form  of  investment  shall  feel  con- 
fident of  fair  and  honest  treatment. 

A  want  of  adequate  railway  facilities  would  mean 
industrial  paralysis.  Unless  they  are  provided  when 
needed,  the  government  will  find  itself  confronted 
wath  a  demand  from  all  sources  —  from  the  mer- 
chant, the  manufacturer,  the  farmer  —  which  will 
force  it  to  meet  in  some  way  the  necessitites  of  the 
occasion;  and  this  can  only  be  by  either  furnishing 
the  capital  or  providing  the  railroad  itself.  If  we 
are  r^»  r  Irought  face  to  face  with  tlio  proposition 
of  novcrnnieiit  nwm  r.-liip,  it  will  not  \)e  by  the  im- 
pu:^itioii  ui  excessive  charges,  for  we  can  deal  with 
that  situation,  but  by  tho  impossibility  of  obtaining 
adcMjuatc^  facilities.  The  possibility  of  such  an 
cinoriiencv  i,->  bv  nu  niean*^  fancilul.  We  were  upon 
the  brin!;  of  it  in  tlio  fall  <.f  lOOH  and  tlie  winter  of 
11K)7,  when  crops  were  rottini::  uf)on  the  ground 
because  thev  eouKi  not  he  carried  to  niark(^t  and 
wlien  people  were  frcM'zing  because  coal  could  not  be 
transported  to  keef)  them  warm. 

This  pliase  of  the  matter  is  luu  liule  considered. 


TRANSPORTATION 


105 


If  this  government  hopes  to  continue  its  present 
system;  if  we  are  to  look  in  the  future  as  in  the  past 
to  private  capital  for  the  providing  of  our  railroad 
transportation,  it  is  fundamentally  necessary  that 
confidence  in  the  fair  treatment  of  that  capital  shall 
be  established. 

It  is  often  urged  that  the  proper  way  in  which  to 
produce  confidence  is  by  stopping  the  regulation 
of  railroads.  It  is  urged  that  their  attempted  regu- 
lation has  only  resulted  in  confusion  and  disaster 
and  that  it  never  ought  to  have  been  undertaken. 

This  is  nonsense.  Whoever  controls  the  highways 
of  a  nation  controls  that  nation.  Regulation  was 
inevitable,  and  without  it  a  state  of  anarchy  would 
have  resulted.  There  must  be  regulation,  and  that 
regulation  must  be  complete  and  effective;  but  it 
should  be  just  and  intelligent.  The  problem  is 
how^  to  secure  the  right  kind  of  regulation.  The 
naming  of  a  railway  rate  or  a  railway  rule  which 
shall  be  followed  for  the  future  is  a  legislative  func- 
tion, but  none  the  less  it  cannot  properly  be  dis- 
charged by  the  legislature  itself.  In  all  its  essentials 
the  act  partakes  more  of  the  judicial  than  of  the 
legislative.  The  problem  presented  is  a  new  one, 
recjuiring  a  new  kind  of  machinery. 

The  only  feasible  way  seems  to  be  to  create  a 
tribunal  in  the  nature  possibly  of  the  present  com- 
missions; to  make  that  tribunal  as  able,  as  dis- 
passionate, as  honest,  as  is  possible,  and  to  leave 
with  it  the  solution  of  these  questions.     Any  such 


106 


TRANSPORTATION 


tribunal  will  make  errors  on  both  sides;  but  in 
process  of  time  it  will  become,  so  to  speak,  educated 
to  its  duties.  Just  as  the  courts  of  England,  acting 
through  a  series  of  years,  evolved  our  common  law, 
so  in  time  there  will  grow  up  a  system  of  rules 
applicable  to  this  subject  which  will  be  reasonably 
just  to  both  parties. 

There  is  grave  probability  that  within  the  half 
century  liit  liiitcd  States  must  consider  the  ques- 
tion of  takinir  over  the  operation  of  its  railroads. 
No  (Uht  r  (  Minplt'te  solution  of  many  questions  whirb 
pri>uiiL  thriii-  Ives  can  be  suggested.  The  tindency 
ovorywhfTo  i^  thrit  way.  Uihcr  gu\criimeiils  are 
continually  lunyinn  m  Ihat  direction,  and  novor  in 
the  other  dirrrt  iou. 

Sneh  an  nutlrrtakiiiG:  would,  L'owever,  be  a  tre- 
nienduiis  one.  It  i>  nni  certain  that  the  result 
would  be  unfortunate;  but  the  experiment  would 
be  hazardous.  Fnr  nnc  1  would  be  glad  to  see 
remilation  fairly  trltMl  l.rfon^  ownership  is  resort (h1 
to.  To  thi-  (aid  tl>cri'  i<  necessary,  upon  tlu^  ])art  of 
the  public,  intclliir<aie(^  hone.^tly  directed,  u])()n  the 
part  of  the  railway  liom^-t  cor)peration,  upon  both 
sides  patient  forbearance. 


II 


SPECULATION 


A  CHAPTER  on  the  ethics  of  speculation  will  prob- 
ably seem  to  many  people  to  take  inevitably  the 
form  of  the  famous  chapter  on  Snakes  in  Ireland, 
viz.,  that  there  are  no  ethics  in  speculation.  And 
I  fear  that  a  lecturer  on  this  subject  who  takes  a 
different  view  will  be  thought  to  be  in  the  position 
of  a  classmate  of  mine,  who,  on  going  into  an  ex- 
amination in  ethics,  remarked  that  he  ''didn't  know 
an  ethic  when  he  saw  one."  Nevertheless  I  feel 
convinced  that  one  of  the  chief  obstacles  to  the 
achievement  of  a  higher  moral  tone  in  business  is 
the  indiscriminate  denunciation  of  certain  business 
])ractices,  without  any  careful  preliminary  analysis  of 
their  real  nature.  When  popular  writers  are  con- 
stantly i^ouring  out  invective  against  things  which 
practical  men  know  to  be  necessary,  there  is  grave 
danger  that  these  same  practical  men  will  become 
callous  to  all  criticism,  and  will  refuse  to  see  the 
moral  iniquity  of  certain  forms  of  business  w^hich 
are  not  necessary.  In  order  to  make  moral  con- 
demnation most  effective  it  is  important  to  take 
pains  that  it  shall  not  be  misapplied,  and  it  may 
consequently  prove  as  beneficial  to  show  the  right- 
eousness of   conduct   which  was  formerly  held   to 

H)7 


108 


SPECULATION 


be  evil,  as  to  prove  the  iniquity  of  eoncluct  formerly 
held  to  be  righteous.  Moral  iniprovcMUCMit  does  not 
necessarilv  consist  in  increasing  the  number  of  pre- 
scribed practices.  In  his  penetrating  book  on 
Ibsenism,  Mr.  He^rnard  Shaw  dividi^s  the  pioneers 
of  society  into  just  these  two  classes,  —  the  one 
made  up  of  those  who  persuade  the  connnunity 
that  the  practices  whicli  they  had  tolerated  in  the 
past  are  reallv  vile;  the  other  made  up  of  those  who 
persuade  the  community  that  the  practices  which 
they  had  tabooed  in  tlu^  pa^t  are  really  without 
taint.  He  shrewdlv  and  whtily  aserii)es  the  greater 
weight  attached  to  tlu^  teaching  of  the  first  order 
to  the  fact  that  society's  guilty  conscience  is  always 
more  ready  to  believe  in  the  evil  of  its  own  con- 

duct. 

I  feel  sure  that  ol)servations  such  as  these  w^ill  not 
be  understood  bv  you  to  be  meant  in  any  flippant 
sense;  nor  to  reveal  any  lack  of  sympathy  with  that 
very  genuine  improvement  in  tlu^  moral  standards 
of  the  business  world  in  this  country  which  I  sm- 
cerely  beli(we  to  be  the  most  important  achievement 
of  the  first  decade  of  this  new  c(Mitury.  A  moral 
sen<e  however,  which  amounts  to  anything  must 
b(>  accompanied  by  an  intelligent  understanding, 
and  the  business  of  speculation  more  than  any  other 
bu^ine^s,  I  think,  offers  peculiar  illustrations  ot 
two  difficulties  involved  in   the  discussion  of  any 

ethical  problem: 

1.  The  necessity  of  knowing  the  facts  regarding 


SPECULATION 


109 


the  transactions  in  question,  and  not  being  caught 
by  well-sounding  phrases. 

2.  The  necessity  after  the  facts  are  ascertained  of 
interpreting  them  broadly  in  relation  to  the  whole 
social  scheme,  —  that  is,  of  judging  any  social  prac- 
tice, or  arrangement,  or  institution  in  the  light  of 
its  function. 

As  an  illustration  of  my  first  point,  I  may  take 
the  very  prevalent  saying,  that  to  '^sell  short,"  — 
that  is,  to  sell  that  which  one  doesn^t  ow^n  at  the 
time  of  sale,  —  is  '^ clearly  ethically  wTong."  This 
sounds  reasonable  to  one  not  familiar  wdth  business 
because  it  carries  the  implication  to  the  uninitiated 
that  the  seller  has  deceived  the  buyer,  —  that  he 
was  pretending  to  own  something  which  he  didn't 
own.  As  a  matter  of  fact,  of  course,  the  transaction 
carries  no  implication  of  that  kind  at  all.  The 
seller  simply  agrees  to  deliver  a  certain  article  at 
a  future  date,  the  buyer  knowing  perfectly  wtII 
that  he  hasn't  the  article  at  the  time  of  sale  but  is 
in  a  position  to  get  it  before  the  time  of  contract 
delivery.     The  payment  is  made  on  delivery. 

For  example,  I  am  at  the  present  moment  engaged 
in  the  fulhlment  of  a  '^ short"  contract.  Director 
Chittenden  some  months  ago  offered  me  a  certain 
price  for  one  lecture  on  the  Ethics  of  Speculation, 
to  be  delivered  May  27,  in  this  room.  I  had  no 
such  lecture  and  he  probably  knew^  it,  but  I  made 
the  contract  with  no  moral  qualms.  He  had  con- 
fidence that  I  would  make  dehvery  according  to 


W 


110 


SPECULATION 


contract,  and  I  luid  confidence  that  he  wonld  pay 
the  price.  In  the  same  \va\-  a  contractor  agrees  to 
dcdiver  on  a  certain  date  a  house  IniiU  accorcHn.o;  to 
certain  specifications.  Ih'  of  course  owns  no  sucli 
house,  but  can  build  it    m  tlu^  meantime. 

It   may  be  uri^ed  tliat   in   th(^<e  cases  future  de- 
liveries are  necessary,  but  that   in  the  case  of  com- 
modities the  buyer,  if  he  \)c  enga-ed  in  legitimate 
business,  can  wait  till  lu^  wants  the  goods  and  then 
purchase    of    the    so-calh^d   ''real    holder"    at    that 
time.    Here  comes  in  thi^  (>lement  of  lluct  uating  prices 
which  is  at  the  basis  of  all  speculation,  but  is  also 
closelv  involved  hi  all  l)usiness.     1  shall  explain  this 
more  fully  later,   but   will    simply  suggest  liere  in 
passing  that    no  one  would  ([uestion  the  propriety 
of  the  contractor  U'or  the  house  just  mentioned)  l)uy- 
ing  his  stone,  bricks,  and  lumber  to  be  delivered  at 
latter   dates;    nor   the   propriety   of   the   dealers   in 
selling  them  for  such  future  deliveries,  even  if  they 
liaveift  them  in  stock  at   the  moment.     Manufac- 
turers are  regularly  selling  goods  ahead  which  they 
haven't  yet  produced. 

This  explanation  was  ])(>rhai)s  unnecessary,  but 
was  introduced  here  to  illustrate  the  first  require- 
ment in  such  a  discussion,  viz.,  that  we  should  avoid 
subscribing  merely  to  catch  phrases  without  a  more 
careful  examination  of  thcar  meaning. 

The  second  requirement  suggested  was  that  every 
social  practice  that  is  brouglit  up  before  the  bar  of 
moral  judgment  must  be  given  a  fair  trial  in  the  light 


SPECULATION 


111 


i 


of  the  function  which  it  performs.     It  was  suggested 
at  the  outset  that  there  is  danger  in  making  men 
callous  to  criticism  w^hen  things  which  they  know 
to  be  necessary  are  subjected   to  continuous  con- 
demnation.    To   this   many   people  —  especially,    I 
think,   young    people  —  promptly   reply   that   if   a 
thing  is  wrong  it  is  not  necessary,  —  that  to  hint 
otherwise  is  to  substitute  a  base  standard  of  expedi- 
ency for  a  high  standard  of  righteousness.     On  the 
contrary  it   is  the  very  desire   to  avoid   the  easy 
resort  to  expediency  wdiich  makes  this  consideration      , 
important.     When  wx  are  once  convinced  that  for   n\ 
the  welfare  of  society  a  certain  institution  is  neces-  1 1  \ 
sary  for  the  performance  of  a  certain  function,  we  1 1      \ 
cannot  then  be  heard  to  say  that  it  is  inherently    '        \ 
wrong  from  the  moral  point  of  view.     The  thing  j  | 

to  be  desired  is  that  we  shall  not  afford  the  man  of 
business  the  opportunity  of  identifying  whatever  is 
profitable  with  the  things  that  are  necessary;  but 
this  is  exactly  what  we  shall  do  if  we  do  not  recog- 
nize what  things  are  necessary. 

You  wall  see  what  I  mean  by  considering  for  a 
moment  the  institution  on  which  our  whole  economic 
fabric  rests,  —  private  property.  There  are  certain 
writers  who  believe  the  institution  to  be  profoundly 
immoral.  The  Frenchman  Proudhon  answered  the 
question  ''What  is  Property?"  with  the  words 
''Property  is  Ro])bery."  Wiat  effective  answ^er 
is  there  to  this  criticism?  Such  an  answ^er  must  of 
course  rest  on  the  necessity  of  private  property  to 


\\ 


112 


SPECULATION 


stimiihiti^  that  effort  and  aceuiiiulation  on  which  the 
nuitcrial  welfare  of  soci(^ty  depends.  We  can  all  see 
certain  evil  filatures  in  a  s\stcni  based  on  tlu^  private 
pursuit  of  wealtli  by  mdividual  effort,  l)Ut  if  w^e 
aiv  convinced  that  the  important  function  of  feed- 
in^t;  and  clothin.u;  society  is  best  piM'fornied  by  this 
institution  we  cannot  morally  condenni  it. 

Similarly  we  must  examine  the  economic  func- 
tion of  the  Stock  Exchan<i;e  if  we  wish  to  understand 
its  ethical  nature.  And,  wliat  is  more,  we  must 
examine  it  in  the  li^ht  of  the  system  of  private 
property.  That  is  why  I  referred  to  that  funda- 
mental institution  at  this  point.  One  of  the  best 
accounts  of  the  Stock  :\Iarket  was  written  by  that 
verv  Proudhon  who  defint^d  property  as  robbery. 
The  book  may  be  read  in  two  way^, —first,  that 
under  a  system  of  private  property  the  stock  ex- 
change is  a  necessity  and  hence  justified,  —  or, 
second,  any  system  which  makes  the  stock  exchange 
necessary  is  vile,  hence  the  system  of  private  prop- 
erty is  condemned. 

The  second  of  these  is  the  socialistic  position; 
but  obviously  it  would  take  us  way  l)eyond  our 
theme  to  discuss  such  a  problem  as  that.  For  the 
purposes  of  this  lecture  we  may  assume  that  we 
believe  in  the  morality  of  a  business  world  in  which 
men  seek  wealth  by  their  own  elTorts,  own  this 
wealth,  and  exchange  it  in  the  hope  of  making 
profits  thereby.  This  at  once  does  away  with  the 
early   problem   of   ethics   which   troubled   so   many 


SPECULATION 


113 


wTiters  of  the  middle  ages,  namely,  the  problem  of 
how  far  trading  for  gain  is  itself  morally  defensible. 
It  was  tEe  generally  recognized  principle  for  cen- 
turies that  any  profits  of  a  speculative  nature  were 
inunoral  gains.  Thomas  Aquinas  expressed  it  as 
follows : 

Negoiiari  propter  res  necessarias  vitce  consequendas 
omnibus  licet  ;  propter  lucrum  vero,  nisi  id  sit  ordi- 
natum  ad  aliquem  honestum  finem,  negotiari  ex  se 
est  turpe. 

That  is,  trading  in  order  to  secure  the  necessaries 
of  life  is  permissible;  but  trading  for  profit,  unless 
this  profit  is  for  some  nobler  end,  is  wicked  in  its 
very  essence. 

The  medieval  theory,  you  see,  was  that  for  each 
article  there  is  a  "just  price,"  and  this  price,  on  the 
whole,  represents  the  necessary  return  to  the  pro- 
ducer to  enable  him  to  maintain  the  standard  of 
life  of  the  class  among  which  he  w^as  born.  Such  a 
price  might  include  all  necessary  costs,  —  including 
possibly  an  element  of  insurance  for  the  physical 
danger  to  the  commodity  in  case  of  distant  trans- 
port, —  but  any  compensation  for  commercial  risk 
w^as  rigidly  excluded  in  theory. 

With  the  growth  of  commerce  and  the  change  in 
the  methods  of  production,  the  old  ideas  broke 
down.  There  was  no  such  certain  cost  of  produc- 
tion and  no  such  certain  and  hereditary  standard 
of  life  on  which  the  idea  of  the  just  price  could  be 
based.     All  prices  became  uncertain  and  fluctuating 


If 

! 


Ill 


SPECULATION 


SPECULATION 


115 


U ' 


and  all  trade  camo  to  be  for  an  uncertain  gain.  In 
other  words,  ail  trade  came  to  be  speculative. 
Traders  took  great  risks  and  made  up  tor  their 
losses  in  some  cases  by  liigh  profits  in  another. 
The  very  maxim  of  trade  came  to  be  "to  buy  ajs 


cheaply  and  to  sell  as  dearly  as  possible."  To-day 
this  is  generally  recognized.  A  man  may  not  cheat 
by  false  statements,  nor  may  he  oppress  the  help- 
less and  the  ignorant,  but  no  moral  opprobrium 
attaches  to  the  merchant  or  manufacturer  who 
wisely  foresees  the  demand  of  the  public,  secures 
the  goods  they  want  at  the  most  favorable  rates, 
and  sells  them  for  wliat  the  pul)lic  will  pay.  We 
may  fairly  say  that  all  business  has  become  specu- 
lative in  the  sense  that  all  business  involves  risk,  — 
the  risk  of  losing  money,  for  which  the  compensa- 
tion in  the  mind  of  the  business  man  is  the  corre- 
sponding chance  for  ])rotit. 

The  crux  of  the  whole  matter  lies  in  this  question 
of  risk.  In  one  sense  every  action  of  our  lives 
involves  a  risk;  and  yet  we  find  tliat  the  approval 
of  the  public  rewards  the  conservative  man  who  is 
said  ''not  to  take  ri-^ks";  while  it  looks  askance  on 
the  man  who  is  reckless  in  this  regard.  Can  we 
find  any  dividing  line?.  If  I  rent  a  house,  I  take 
Ihe  risk  that  it  may^not  be  well  built  or  easily 
heated;  if  I  l)uy  a  horse,  I  take  the  risk  that  he 
may  not  be  sound;  if  I  buy  a  new  brand  of  tobacco, 
I  take  the  risk  that  T  may  not  like  it;  if  1  buy  a 
theater  ticket  I  take  the  risk  that  the  play  may  bore 


me.     To  make  the  case  personal  again.  Dr.  Chitten- 
den,  in  inviting  me  here,  took  the  risk  that  this 
lecture  would  bore  you  without  enlightening  you. 
But  you  will  at  once  see  that  risks  of  this  kind,  on 
the  whole,  are  necessary  risks,  and  that  with  due 
caution  and  adeciuate  attention  to  the  conditions 
they  are  perfectly  moral  and  legitimate.     The  old 
adage  '^ Nothing  venture,  nothing  have"  holds  true, 
to  some  extent,  in  all  affairs  of  life;  but  it  does  not 
follow    from    this    that    all   venturing   is    therefore 
moral.     The   test   would   seem   to   lie   in   the   two 
points  of  how  far  the  risk  is  necessary,  and  how  far 
it  is  well  considered.     This  test  probably  could  be 
applied  to  all  the  manifold  risks  of  life.     For  our 
purposes,    however,    it    is   enough    to    restrict    our 
attention  to  those  risks  which  are  properly  finan- 
cial  in  nature, —  that   is,   where   a  man  risks  his 
money   in   the   hope   of   increasing   it.     Indeed,    it 
wouki   savor   of    immorality   for   me   to    take  the 
unnecessary  risk  of   losing  my  path  altogether  in 
this  lecture  through  wandering  among  the  tangled 
byways  of  general  ethics. 

Coming  back  then  to  our  topic,!  we  have  seen  that 
all  business  involves  risk,  and  so,  m  the  broad  sense, 
may  be  called  speculative.  If  men  are  allowed  to 
own  property  at  all,  a  risk  is  involved  in  the  owner- 
ship. The  property  may  be  destroyed,  or  deterio- 
rate, or  most  important  for  our  purposes,  it  may 
fall  'in  value.  The  term  speculative  risk,  strictly 
applied,  refers  to  this  last  risk  of  changing  values. 


\ 


116 


SPECULATION 


In  proportion  as  a  business  is  dependent  on  fluctu- 

I  ating  values  it  is  speculative  business.     Speculation 

pure^and  sini])le  is  the  name  applied  to  that  kind 

I  of  business  wliuh  is  solely  concerned  in  securing 
a  profit   fr-mi  uncertain  price  fluctuations  over  a 

i_j)erio(i  of  time,  ]  Thus  we  can  mark  it  off  both  from 
tiiu  trade  of  tiie'  rnercharit  in  the  case  of  commodities, 
or  from  investment  in  'he  case  of  securities. 

What  is  the  difference  between  a  wheat  merchant 
and  u  wheat  speculator?  The  wlu^at  merchant  is  a 
man  who  buys  wheat  of  the  farmer  or  in  the  primary 
markets  and  s(4ls  it  to  the  miller  or  for  export. 
That  L-  he  buvs  in  one  market  and  sells  in  another, 
just  as  the  pcrocer  who  sell>  >'ou  a  i)arrel  of  iiour 
buys  of  the  wholesaler  and  sells  to  you.  There  i-  a 
normal  difference^  of  price  hetw(H'n  these  two  markets 
and  from  that  ditiVrence  come  what  may  be  called 
strict    mercantile  profit <.     If   the   I)rice  of  flour   at 

'^  the  Minneapolis  mills  n^niained  uniform  for  a  year, 
there  would  still  be  reason  for  the  activities  of  the 
grocers,  both  wholesale  and  retail.  In  the  same 
way,  if  the  price  of  wheat  on  the  Chicago  Board  of 
Trade  remained  uniform  tlii^re  would  still  be  occa- 
sion for  the  mercliants  to  get  the  wheat  of  Dakota 
into  the  markets  of  England,  and  in  both  cases  the 
regular  profits  of  the  middh^nan  might  be  expected. 
There  would  be  certain  risks  involved,  but  they 
would  not  be  ri<ks  of  wide->pread  price  fluctuation. 
But,  as  a  matti^r  of  fact,  prices  of  wheat  do  not 
remain  uniform  for  any  length  of  time.     They  are 


SPECULATION 


117 


Ui 


affected  by  the  changing  conditions  of  supply  and 
demand  over  the  whole  world;  and  their  fluc- 
tuations are  entirely  beyond  control  and,  in  large 
measure,  even  beyond  prediction.  Here,  you  see, 
entirely  new  risks  arise.  Large  extra  gains  may  be 
secured  if  the  price  goes  up,  or  severe  loss  may  be 
met  if  the  price  goes  down.  The  merchant  himself 
is  largely  helpless  before  the  speculative  risks  of 
this  kind.  It  is  just  here  that  the  speculator  comes 
in.  He  trades  purely  on  these  fluctuations  which 
occur  in  a  single  market  (or  in  all  markets  at  the 
same  time).  If  he  is  a  speculator  on  the  Chicago 
Board  of  Trade,  he  buys  wheat  in  Chicago  for 
delivery  at  some  future  time  in  Chicago,  if  he 
expects  the  price  to  rise,  or  he  sells  short  for  delivery 
at  some  future  time  if  he  expects  the  price  to  fall. 
It  is  not  the  difference  between  the  price  of  wheat 
in  Chicago  and  Liverpool  that  interests  him,  so 
much  as  the  difference  in  price  between  May  and 
September. 

I  Now  the  question  is  whether  this  is  a  moral  or 
justifiable  thing  for  him  to  do.     Does  he  do  any 
good  to  anyone,  or  perform  any  service  to  the  busi- 
ness world  by  such  transactions;  or  is  he  merely  a    y 
parasite  who  has  arisen  because  of  these  dangerous  \\y^ 
fluctuations?     To    answer    that,    you    must    first 
recognize   that   he   is  at  least   a  product  of  these  \ 
conditions;    that    is,    speculation   of   a   professional 
kind  is  the  result  of  very  actual  risks  of  price  fluc- 
tuation in  the  markets  of  the  world.     Some  people 


\ 


lis 


SPECULATION 


/ 


think  that  spectihition  is  tlio  chief  ratise  of  fltictu- 
ation  prices,  but  the  laet  is  just  the  opposite.     It 

^s  the  ihicttiation  which  catises  the  speculation.  If 
this  were  not  so,  specuUuion  could  be  started  in 
any  commothty  at  \viU.  Such  attempts  to  create 
speculation  artificially  have,  however,  always  failed. 
When  the  i)rice  of  any  connnodity  is  relatively 
stable  over  any  considerable  period  of  time  specula- 
tion does  not  arise.  You  can  see  this  at  a  glance 
by  considering    what    conunodities  are  dealt   in    on 

,Ahe  spectilative  exchanges, -— wheat,  corn,  cotTee, 
cotton,-  /.c,  tlu-  conunodities  in  which  the  con- 
ditions of  demand  or  supply,  or  both,  are  very  un- 
certain, of  a  world-wide  nattire,  and  beyond  the 
control  of  any    single  group  of  men. 

The  speculators,  then,  are,  in  the  first  place,  tak- 
ing- real  risks  arising  from  real  lousiness.  By  doing 
so,  are  they  relieving  any  one  else  of  risk,  or  are 
they  simply  ailding  to  risks  already  existing?  If 
the^  latter  is  tlie  case  I  could  make  no  moral  or 
economic  argument  in  favor  of  speculation.  But 
what  happens  is  that    through   -his  assumption  of 

I  risks  the  merchant  and  miller  are  in  large  part 
relieved  of  the  risks  which  otherwise  they  would 
have  to  run.  The  risks  are  tlu^re;  some  one  must 
take  them.  As  they  have  increased  through  the 
widening  of  the  market  into  a  world  market,  — 
there  has  been  a  ditlerentiation  of  dealers  into  two 
.  classes,  merchants  and  speculators.  Instead  of  all 
merchants  being  obliged  to  speculate  to  some  extent, 


SPECULATION 


119 


a   new^   class   has   arisen   to   speculate   on   a    large 

scale. 

Let  me  explainj^riefly  how_this  special  c1a>s.s.-Qf. 
speculators  js  .Enabled  to  carry  the  risks  which 
otherwise  woulclhave  to  be  carried  by  regular 
merchants  in  the  case  of  such  a  commodity  as  wheat. 
A  merchant  whose  function  consists  in  getting 
wheat  from  the  hands  of  the  producer  into  the  hands 
of  the  consumer  wishes  to  make  a  regular  mercantile 
profit  from  the  difference  in  prices  between  the  tw^o 
markets.  If  he  is  a  conservative  dealer,  he  washes 
to  avoid  so  far  as  possible  the  risks  which  arise 
from  fluctuation  in  prices  over  a  period  of  time. 
By  the  practice  known  as  ''hedging"  he  is  now^ 
enabled  to  avoid  these  risks  nearly  altogether. 
Suppose  a  wheat  merchant  wishes  to  buy  w^heat  in 
Dakota  for  export  to  Liverpool.  Under  the  old 
practice  he  w^ould  have  bought  outright,  shipped  it 
to  Liverpool,  and  have  sold  it  there  perhaps  two 
or  three  months  later.  In  the  meantime  the  market 
might  have  changed  so  completely  that  the  trans- 
action would  involve  a  great  loss.  On  account  of 
this  possibility  the  wheat  merchant  was  formerly 
obliged  to  buy  of  the  farmer  at  five  or  ten  cents  a 
bushel  under  the  regular  market  price.  Now  a  mer- 
chant can  buy  wheat  in  Dakota  and  instantaneously 
sell  on  the  Chicago  Board  of  Trade  an  equivalent 
amount  of  wheat  for  future  delivery.  He  does 
not  intend  to  deliver  his  Dakota  wheat  in  Chicago 
under  this  contract,  but  as  before  washes  to  ship 


M 


■•?■  I 


I  f 


f 


120 


SPi:(  ULATION 


it  to  T/iverpool.  This  he  can  now  do  with  a  sense 
of  security,  and  the  moment  he  sells  his  actual 
wheat  in  Liverpool  he  covers  his  short  contract  on 
the  (1iica<i;o  Board  of  Trade.  If,  in  the  meantime, 
the  price  of  wheat  has  fallen  five  cents  a  l)ushel,  he 
will  lose  that  much  on  his  original  transaction,  but 
will  make  as  much  more  to  offset  it  through  his  deals 
in  futures  on  the  Board  of  Trade.  So  far  as  the 
merchant  is  concerned  this  is  not  speculation  at  all, 
although  he  uses  the  machinery  of  the  speculative 
market;  it  is  merely  protcH'tion  against  loss.  It 
also,  of  course,  eliminates  the  possibility  of  specula- 
tive gain.  In  other  words,  the  risks  of  fluctuating 
values  are  avoided  by  him  and  are  thrown  upon  the 
shoulders  of  the  Chicago  speculators  who  make  a 
business  of  carrying  such  risks  and  prefer  specula- 
tion to  ordinary  mercantile  pursuits.  The  risks 
were  there  in  any  case.  By  the  old  method  the 
merchant  was  obliged  to  carry  them.  By  the  new 
method  he  gets  the  speculators  to  carry  them  for 

him. 

A  similar  distinction  may  be  drawn  between  the 
investor  and  the  speculator  in  the  case  of  capital. 
The  investor  uses  his  money  to  buy  securities  in 
the  hope  of  an  annual  income.  The  speculator 
buys  in  the  hope  of  making  speculative  profit  from 
a  rise  in  price.  Does  the  investor  gain  anything 
from  this  body  of  speculators?  Obviously  his  risks 
are  reduced  in  much  tlie  same  way.  Modern  busi- 
ness reciuires  the  investment  of  thousands  of  millions 


SPECULATION 


121 


of  capital  in  great  enterprises  of  which  the  average 
investor  can  never  know  much  through  any  investi- 
gation of  his  own.  In  order  to  reduce  the  risk 
enough  to  entice  capital  into  these  fields,  we  have 
been  obliged  to  introduce  the  principle  of  limited 
liability  of  stockholders.  But  even  with  this  pro- 
vision, it  is  hardly  to  be  supposed  that  adequate 
capital  would  be  forthcoming  unless  there  were  an 
open  market  for  the  securities  of  such  companies,  — 
or  if  it  were,  the  hardship  to  investors  would  be  great. 
The  Stock  Exchange  of  New  York  provides  that 
open  market.  On  its  list  are  securities  aggregating 
billions  of  dollars,  held  by  more  than  a  million 
investors.  The  prices  which  prevail  there  represent 
the  opinion  of  the  market  as  to  the  real  values  of 
these  securities.  They  are  the  guide  which  the 
investor  has  and  without  them  he  would  be  very 
much  in  the  dark.  But  this  is  not  the  main  point. 
These  are  the  prices  at  which  he  may  buy  or  sell 
at  any  moment.  The  instant  he  w^ishes  to  shift 
his  risk  he  can  find  a  purchaser  in  the  open  market 
ready  to  take  over  his  property  at  the  market 
price. 

I  hope  I  have  made  clear  the  real. fuuctionat, the 
professional  speculator.  It  is  he  who  maintains 
an  open  market  in  which  the  merchant,  the  manu- 
facturer, and  the  investor  may  find  some  one  to  carry 
his  risks  for  him  at  any  time.  Without  such  specu- 
lative markets  many  lines  of  business  and  invest- 
ment would  be  much  more  risky  than  they  now  are. 


122 


SPECULATION 


SPECULATION 


123 


f 


I  tliiiik  T  have  answered  the  question  propounded 
as  to  whetlier  the  sjoeeuUitor  i)erfornis  a  serviee 
to  business  or  i>  nuTely  a  parasite  upon  it.  Without 
the  great  specuhitive  market  the  distribution  of 
commodities  and  tht^  investment  of  capital  would 
be  creaily  hampered.  I  have  devoted  so  nuich 
attention  to  the  function  of  speculation  because 
it  happens  to  be  al)out  the  only  line  of  Inisiness  of 
great  size  which  is  wid(4y  thought  to  be  immoral 
in  its  very  essence.  One  lecturing  on  the  Ethics  of 
Manufacturing  or  the  i:thics  of  Publishing  does  not 
need  to  explain  that  these  lines  of  business  are  in 
tliemselves  n(H'cssary  or  legitimate.  ^ 

/    But  if  I  have  succcHnled  in  showing  that^specu- 
/  lation  may  be  perfectly  moral   in  some  cases,  the 
/     problem  still  remains  ofjhe  moral  evils  which  it 
/       incurs.     In  the  first  place  it  may  be  asked,  are  not 
Y /'the  methods  of  speculation  ethically  indefensil)le?3lt 
/  /   is  not  possible  to  go  into  the  details  of  the  technical 
'        methods  and    rules  of   the  exchanges,  but   a  word 
may  be  said  on  three  objections  raised. 
/       1.     Short-selling.    I  spoke  of  that  at  the  outset  and 
need  only  remind  you  again  that  it  is  not  necessarily 
ethic:dly   wrong   to  sell   goods   for    future   delivery 
which  you  do  not  own  at  the  moment.     If  specu- 
lation is  permissibU^  f(»r  the  rise,   it   is  permissible 
for  the  fall,  and  in  fact,  if  there  were  no  short-selling, 
there  would  be  no  speculative  market.      The  hedg- 
\       ing  in  the  whcnit   market  which  I  described  before 
\     would  be  impossible  without  it.     In  fact,  the  short- 


seller  is  a  most  valuable  man  in  the  market.     It  A 
is  he  w^ho  checks  the  reckless  plungers  who  would 
drive  prices  to  the  panic  point,  and  who,  if  a  crisis 
does  come,   supports  the  market  by  his  covering  ^    ; 
purchases. 

2.  The  method  of  delivery.  It  is  thought  by 
many  that  the  speculative  exchanges  adopt  immoral 
practices  in  this  regard  because  they  provide  a 
method  which  makes  settlement  of  contracts  pos- 
sible without  specific  delivery  in  each  case.  It  is 
claimed  that  this  is  therefore  not  real  business,  but 
mere  betting  on  prices.  There  is,  however,  so  far 
as  I  can  see,  nothing  inherently  wrong  in  the  method 
itself.  It  is  no  more  than  a  system  of  clearing. 
Every  contract  requires  actual  delivery  of  the  goods 
or  securities,  and  no  one  can  avoid  making  the 
delivery  save  by  contracting  with  another  party  to 
do  it  for  him.  Neither  can  a  man  avoid  receiving 
the  property  except  by  selling  or  lending  it  to 
another  party.  Such  a  series  of  contracts  may  go 
through  a  long  line  and  all  be  settled  by  a  delivery 
by  the  first  man  to  the  last,  but  that  is  not  inherently 
wrong.  It  is  nothing  more  than  what  takes  place 
among  the  banks.  I  give  my  check  to  you  for  SlOO 
for  goods  delivered.  It  requires  the  payment  of 
cash  by  the  bank.  You  prefer  to  deposit  it  with 
your  bank  and  the  two  banks  arrange  an  offset 
because  of  a  similar  claim  which  my  bank  holds 
against  yours.  No  cash  passes  at  all,  and  yet  no 
one  would  venture  to  say  that  this  is  not  actual 


V2\ 


SPECULATION 


SPECULATION 


125 


business.  Cash  is  paid  only  on  the  necessary  bal- 
ances, and  the  same  is  true  as  to  commodities  or 
securities  on  the  exchanges. 

3.     Margin  speculation.     Much  evil  arises  from 
this,  but  in  itself  there  is  no  moral  taint  to  it.     So 
far  as  the  rules  of  the  exchange  for  the  brokers  are 
concerned,  they  simply  provide  for  the  deposit  of 
a  certain  guarantee  against  loss,  which  is  common 
enough  in  all  business.     When  he  deals  on  margin 
he  is  deahng  on  l)()rn)\vod  capjtalA— i.e.,  he  supplies 
say  ten  pir  cent  of  the  i)urclil^^rice  and  hypothe- 
cates the  stock  l(  .r  i  he  other  lunety  per  cent.    This  is 
dangerous,  perhaps,  but  it  is  not  necessarily  ethically 
wrong.     1  may  buy  a  piece  of  real  estate  for  ?10,000 
and  pay  (.nly's'ilHJO,  giving  a  mortgage  for  the  ])al- 
ance.     This  is  not   necessarily  immoral,   though  it 
may  V)e  reckless,  or  not,  according  to  the  conditions. 
It  is,  ho\vev(^r,  the  same  principle  as  buying  on  a 


margni. 


To  conclude  this  very  brief  statement  as  to 
methods,  it  appears  tluit  a  contract  made  by  a 
l)roker  in  regular  manner  on  a  reputable  exchange 
is  a  bona-fide  contract,  which  cannot,  because 
modern  credit  and  clearing  methods  are  used,  be 
called  immoral  in  itself. 

It  begins  to  look  to  you,  I  fancy,  as  if  the  opening 
remarks  regarding  the  cliapter  on  Snakes  in  Ireland 
were  going  to  be  reversed,  and  that  instead  of  show- 
ino-  that  there  are  no  ethics  in  speculation,  I  was 
trying  to  prove  that  there  is  nothing  in  the  whole 


system  contrary  to  ethics.  Let  us  see  where  we  have 
arrived.  Speculation  we  have  seen  to  be  an  inherent 
part  of  rnodern  business.  It  is  an  inevitable  result 
of  ihe  fluctuations  in  the  prices  of  private  property. 
Somebody  must  bear  these  risks.  A  class  of  specu- 
lators has  arisen  ready  to  assume  them.  Specula- 
tive markets  with  organized  machinery  are  the 
I  resuU-  The  forms  of  contract  and  methods  o 
Settlement  are  in  themselves  not  wrong,  nor  are  they 
as  a  matter  of  fact  different  in  their  essence  from 
the  ordinary  transactions  of  business.  It  is  obvious 
then  that  the  final  ethical  question  is,  —  Who  are 
these  speculators  and  how  far  are  they  morally 
justified  in  their  transactions?  There  are  three  types 
in  the  speculative  market. 

First  there  are  the  men  who,  possessed  of  large 
capital,  devote  themselves  to  it  professionally.  It 
is  their  function  in  the  economic  system  to  buy  and 
sell  solely  with  an  eye  to  these  fluctuating  values. 
They  assume  the  risks  which  other  men  do  not  care 
to  assume.  Such  business  seems  to  me  entirely 
legitimate,  provided  it  is  carried  on  according  to  y. 
the  ordinary  rules  of  business  honesty.  The  un-  /\  [ 
fortunate  thing  is  that  the  temptation  to  adopt 
devious  methods  is  very  strong.  The  point  lies 
just  here:  It  is  profitable  under  the  present  con- 
ditions of  business  to  use  all  the  shrewdness  one  has 
in  forecasting  conditions  and  buying  or  selling  on 
a  large  scale  in  anticipation  of  them.  Indeed,  a 
big  speculative  deal,  if  successful,  is  likely  to  be 


/ 


126 


SPECULATION 


beneficial,  and  if  unsuccessful  is  likely  to  be  harm- 
ful to  the  community. 

But  of  coursp  the  profit  comes  in  in  being  the  only 
on^e  to  be  right.    This  may  be  done  honestly  by 
)    superior  inteUigence  and  information.    On  the  other 
\  fl  hand  it  may  be  done  by  manufacturing  false  news, 
'   'by  bribing  the  financial  columns  of  the  gress,  by 
starting  "lake  rumors  and  the  like.     The  history  of 
specuIatlonT  is   unquestionably   rife  with  instances 
of  this  kind.     It  is  questionable  if  anything  has  been 
learned  in  this  regard  in  two  hundred  years.     A 
curious  book  published  in  1719,  ''The  Anatomy  of 
Exchange  Alley,''  gives  many  illustrations  of  the 
practice.     There  is  little  to  be  said  about  it,  save 
that  it  is  wholesale  deception,  condemned  by  the 
moral  sense  of  all  honest  men.     It  would  be  as  need- 
less to  biiuw  its  iniquity  as  to  show  the  iniquity  of 
lying  and  bribery  in  general.     All  business  can  show 
instances  of  e\  il  methods,  and  just  as  there  are  dis- 
honest nitrc'iiants  and  manufacturers,  so  there  are 
dishonest  speculators.     Unfortunately  in  both  cases 
tho  di-honest  soiiietimes  rise  to  wealth  and  power. 

It  is,  however,  I  think,  customary  to  exaggerate 
this  side  of  the  picture,  and  though  we  are  far  from 
havini!;  risen  to  a  state  of  perfection,  1  am  confident 

C.J  ^ 

that  a  higher  standard  prevails  now  than  formerly. 
We  see  freciuent  scandals  in  these  days,  but  many 
of  thenn  would  have  passed  as  normal  episodes  of 
business  in  earlier  times. 
The  stock  exchange,  obviously,  offers  one  source 


SPECULATION 


127 


of  evil  which  is  iinpossible  on  the  produce  exchanges. 
The"extent  of  so-called  manipulation  is  less  than 
is  commonly  supposed  in  any  case.  This  is  not 
because  of  the  wickedness  of  it  but  because  of 
its  difficulty.  Some  brokers  will  tell  you  that  all 
prices  are  manipulated,  but  this  is  not  true.  If  it 
were,  the  making  of  fortunes  would  be  too  easy  to 
be  amusing.  As  a  matter  of  fact  the  record  of 
failures  far  exceeds  the  record  of  successes,  and  many 
a  great  manipulator  has  gone  down  to  ruin  from  the 
mistaken  idea  that  he  could  do  what  he  pleased 
with  his  rival  speculators  or  with  the  public  at  large. 
A  young  and  foohsh  speculator  will  tell  you  that  the 
big  men  can  do  anything.  An  old  and  wise  one 
will  tell  you  that  in  nine  cases  out  of  ten  the  man  who 
underrates  the  pubhc  will  meet  his  Waterloo. 

All  this  is  especially  true  of  the  produce  exchanges, 
because  nobody  can  long  control  the  price  of  any 
great  staple.  In  the  case  of  the  stock  exchange, 
however,  a  man  may  be  at  once  the  guiding  manager 
of  a  corporation  and  a  speculator  in  its  securities. 
In  this  case  he  has  a  divided  interest,  —  his  duty  to 
his  stockholders  and  his  desire  to  make  stock-jobbing 
profits.  His  obvious  duty  is  to  manage  the  prop- 
erty as  well  as  he  knows  how  and  to  be  scrupulous 
that  the  stockholders  get  the  benefit  of  his  manage- 
ment. He  may  choose  instead  to  manage  it  in  such 
a  way  as  to  make  the  price  fluctuate  wildly,  and 
under  his  control,  while  making  big  personal  profits 
on   the  exchange  from   his  knowledge  of  what  he 


,!> 


128 


SPECULATIOX 


is  going  to  do.  There  have  been  cases  where  a 
eorporati(Mi  president  has  wantonly  wrecked  a  great 
enterprise,  and  thereby  ruiiunl  or  crippled  thousands 
of  stuckliolders  because  he  was  short  of  the  stock  of 
his  own  company.  This  is  al^out  the  most  dastardly 
form  of  dishonesty  known  to  man.  Compared  with 
such  a  mampulatur  u  >ah'-breaker  is  a  respectable 
and  courageous  citizen.  Such  men  are  rare,  and 
no  one  had  a  t!;ood  word  to  say  for  them.  But  there 
are  other  groat  managers  who,  while  building  up 
the  property  they  control,  use  the  speculative 
market  as  a  means  of  securing  for  their  own  pockets 
the  gains  that  should  go  to  the  stockholders.  Sup- 
pose a  man  keeps  secret  the  results  of  his  own 
management,  covers  up  the  increased  earnings,  and 
is  thus  enabled  to  secure  at  low  prices  the  stock 
of  many  shareholders.  Then  when  he  is  ready  for 
the  coup,  he  reveals  the  conditions,  declares  a  big 
dividend,  and  on  the  great  rise  on  price  sells  out 
again  at  high  profits.  He  has  not  caused  any  posi- 
tive loss;  he  has  built  up  instead  of  tearing  down; 
but  he  has  none  the  less,  by  the  devious  use  of  the 
stock  market,  put  into  his  own  pocket  the  increased 
value,  which  morally  belonged  to  the  owners  of 
the  property.  This  may  be  high  finance  and  some 
people  admire  it,  but  it  is  contrary  not  only  to  morals, 
but  to  the  simplest  legal  principles  of  trusteeship. 
The  moment  a  company  director  speculates  in  his 
owm  shares,  he  is  in  grave  moral  danger  and  legal 
danger  as  well.     His  business  is  to  make  money  for 


SPECULATION 


129 


his  stockholders  and  not  for  himself.  To  those  of 
you  who  are  destined  to  become  industrial  leaders 
of  the  future,  I  can  give  no  more  earnest  injunction 
than  on  this  point.  The  danger  is  all  the  greater 
because  such  conduct  often  wins  the  enthusiastic 
applause  of  the  ^'speculative  crowd"  and  of  an 
unthinking  public.  Some  of  our  greatest  financial 
geniuses  have  been  guilty  of  it. 

Regarding  inside  speculation,  I  can  only  say  again 
that  I  am  optimistic  enough  to  believe  that  the 
market  to-day  shows  fewer  and  less  flagrant  cases  v«^ 
than  formerly  and  that  a  higher  moral  standard  of 
the  duties  of  directors  is  slowly  but  surely  making 
itself  felt.  It  is  not  conceivable  that  the  scandals 
of  the  old  Erie  speculation  should  reappear  to-day, 
and  it  is  not  too  much  to  hope  that  some  of  the 
manipulation  that  has  recently  taken  place  in  a  great 
transcontinental  line  would  be  looked  upon  by  our  1/ 
new  generation,  when  they  come  to  deal  with  busi- 
ness affairs,  as  beneath  the  standard  of  a  thoroughly 
honorable  operator. 

You  have  read  probably  a^good  deal  in  the  press 
about  so-called  %^ashed  sales^^^hich  is  one  of  the 
devices  sometimes  resorted^to  by  manipulators  to 
create  a  fictitious  price  for  securities.  The  practice  ^ 
is  thoroughly  dishonorable  and  is  absolutely  con- 
trary to  the  rules  of  the  exchange.  In  fact,  these 
rules  state  that  any  member  found  guilty  of  such 
conduct  shall  be  expelled.  The  practice,  however, 
is  not  so  common  as  is  sometimes  supposed  and  can 


130 


SPECULATION 


SPECULATION 


131 


( 


") 


only  be  successfully  carried  out  in  the  case  of  inac- 
tive securities.  It  consists  of  employing  one  set  of 
brokers  to  buy  and  one  set  of  brokers  to  sell  the  same 
security.  If  the  brokers  on  both  sides  are  acting 
for  the  same  principle,  obviously  it  makes  no  difTer- 
ence  what  the  terms  of  the  transaction  are,  and  orders 
can  be  so  given  that  the  price  may  be  put  either  up 
or  down  for  the  time  being  before  independent 
dealers  come  into  the  market.  This  may  be  done 
by  entirely  innocent  brokers  or  may  be  done  by 
actual  collusion  on  the  part  of  the  brokers  who 
understand  what  they  are  being  used  for.  In  the 
latter  case  of  course  the  brokers  are  as  guilty  as 
the  original  operator. 

A  second  class  of  speculators  consists  of  men  of 
some  means  and  some  judgment  who,  while  regularly 
concerned  with  some  other  business  or  profession, 
are  inclined  to  use  a  small  part  of  their  means  in 
the  attempt  to  make  a  good  turn  in  the  market. 
That  is,  they  are  not  content  with  mere  investment, 
but  wish  a  speculative  profit  from  changing  values. 
The  question  of  the  morality  of  these  is  a  question 
of  circumstances,  —  that  is,  it  is  primarily  a  ques- 
tion of  how  far  they  act  sanely  and  within  their 
means,  and  how  far  they  are  hindered  in  doing  their 
full  duty  to  their  major  calling.  Suppose,  for 
instance,  that  a  physician  who  has  an  extra  82000 
at  his  disposal,  which  he  does  not  especially  need, 
and  the  loss  of  which  would  not  be  greatly  felt,  sees 
a  railroad  about  to  be  built  in  his  neighborhood  and 


thinks  that  the  price  of  near-by  timber  land  will 
surely  rise.  A  tract  is  offered  him  for  $8000,  which 
he  buys,  paying  $2000  down  and  giving  a  mortgage 
for  the  balance.  He  buys  it  purely  for  the  specu- 
lative turn.  The  venture  may  prove  to  be  success- 
ful or  disastrous,  but  in  itself  can  scarcely  be  called 
immoral  conduct  according  to  accepted  business 
standards.  Obviously  what  he  is  doing,  however,  is 
speculating  in  real  estate  on  a  margin,  and  it  is  not 
necessarily  immoral  for  him  to  speculate  in  the  same 
way  in  securities.  The  real  question  as  to  specula- 
tion by  men  of  this  class  —  and  by  men  of  this  class 
I  do  not  mean  simply  physicians,  but  business  men 
or  professional  men  who  at  times  have  surplus  funds 
with  which  they  can  afford  to  take  risks  —  is  what 
are  the  ultimate  effects  of  speculation  by  such  peo- 
ple ?  If  a  man  can  afford  some  chance  and  prefers 
to  put  his  money  into  risky  undertakings  with  a 
chance  of  greater  profit  rather  than  invest  in  the 
most  conservative  securities,  there  is  nothing  in- 
herently wrong  in  such  individual  action.  The 
danger  lies  in  his  being  led  more  and  more  into 
speculations  of  this  kind  which  he  cannot  properly 
afford.  As  a  rough  test  of  the  morality  or  im- 
morahty  of  such  conduct,  I  suggest  that  you  watch 
the  effect  of  such  a  course  on  a  man's  attitude 
toward  his  regular  occupation.  If  his  mind  is  so 
much  on  his  speculative  ventures  that  he  does  not 
put  his  full  time,  energy,  and  devotion  into  doing 
the  very  best  work  in  his  chosen  profession,  he  has 


y 


132 


SPECULATION 


( 


h) 


overstepped  the  limits  both  of  wisdom  and  of  the 
highest  standard  of  right.  If,  when  he  comes  into 
his  home  or  into  his  office  at  the  end  of  the  day  and 
is  more  concerned  to  get  the  market  report  to  see 
whether  stocks  have  closed  up  or  down  than  he  is 
to  see  what  work  there  may  be  for  him  to  attend 
to  in  his  regular  business,  he  is  then  in  grave  danger 
of  faUing  into  the  third  class  of  speculators,  to  whom 
I  will  briefly  refer  now. 

This  third  class  is  made  up  of  the  men  who  have 
neither  the  character  nor  the  means  to  take  chances 
of  this  kind.  It  is  the  great  class  of  small  gamblers 
who  are  feverishly  trying  to  get  rich  quick.  In 
this  class  we  find  the  most  damnable  indictment  of 
the  whole  system.  The  very  perfection  of  the  ma- 
chinery which  has  been  adopted  to  facilitate  trade 
also  operates  as  a  keen  incentive  to  the  gambling 
spirit.  I  have  always  contended  that  from  the 
economic  point  of  view  there  is  a  very  sharp  distinc- 
tion  to  be  made  between  speculation  and  gambling  ) 
in  the  ordinary  sense  of  the  word;  but  when  specu- 
lation is  carried  on  by  men  who  have  not  the  means 
to  afford  the  loss  wdthout  serious  injury  to  them- 
selves and  their  families,  and  who  have  not  the  judg- 
ment which  is  necessary  for  this  most  dangerous 
of  all  business  practices,  such  speculation  becomes 
gambling  from  the  moral  point  of  view.  Unfortu- 
nately, because  it  assumes  the  form  of  legitimate 
trade,  it  offers  an  opportunity  under  the  cover  of 
respectability  for  men  who  would  be  ashamed  to 


SPECULATION 


133 


take  such  risks  in  any  of  the  ordinary  forms  of 
betting.  The  evil  is  greatly  intensified  by  the  exist- 
tence  of  the  so-called  bucket  shops,  where  the  trans- 
actions  are  gambling  pure  and  simple.  In  bucket 
shops  there  is  no  buying  and  selling  of  actual  prop- 
erty, such  as  takes  place  on  the  exchanges,  but  by 
holding  out  great  inducements  and  accepting  trans- 
actions on  the  smallest  margins,  these  parasites  on 
the  legitimate  stock  exchange  are  responsible  for 
untold  evil.  But  even  a  large  part  of  speculation 
on  the  stock  exchange  itself  partakes  in  some  measure 
of  this  character.  The  long  fist  of  ruined  reputa- 
tions, the  long  line  of  convictions  for  embezzlement, 
are  a  tragic  witness  to  this  fact. 

Let  me  at  this  point  give  you  a  warning,  which, 
although  it  may  seem  to  you  entirely  unnecessary, 
is  —  I  am  convinced  —  one  which  every  man  should 
seriously  consider.  You,  young  gentlemen,  what- 
ever you  may  think  of  your  abilities,  are  perfectly 
confident  of  your  own  honesty.  You  cannot  imagine 
a  case  arising  in  which  you  would  make  a  misappro- 
priation of  funds,  and  yet  I  have  known  men  who 
started  in  life  with  chances  equal  to  yours,  with 
ambitions  like  your  own,  with  the  same  confidence 
in  their  own  integrity,  who  have  been  ruined  and 
even  been  criminally  convicted  under  this  tempta- 
tion. No  man  who  occupies  a  position  of  trust  |j 
should  ever  take  the  risk  which  comes  from  oncelj 
yielding  to^  the  stock-gambling  temptation.  1  liave 
known  cashiers  and  treasurers  who  started  out  with 


y 


/ 


I 

I 


134 


SPECULATION 


perfect  honesty,  but  thought  that  they  were  justified 
in  ''playing  the  market"  with  their  own  means. 
The  terrible  result  has  been  that  when  all  of  their 
own  means  have  been  put  up  in  margins,  and  the 
market  for  the  moment  had  gone  against  them,  they 
were  so  confident  that,  if  they  could  tide  over  a 
few  weeks  more,  everything  would  turn  out  favor- 
ably, that  under  the  pressure  they  were  tempted 
to  ''borrow"  money  that  was  not  theirs,  being  sure 
that  they  could  make  it  good  (without  any  one  being 
the  wiser)  the  moment  the  market  changed.  At 
first,  even  in  taking  this  step,  they  have  convinced 
themselves  that  they  were  not  stealing  but  simply 
making  a  temporary  loan.  The  inevitable  crash  fol- 
lowed, and  the  men  who  had  started  out  with  such 
promise  found  themselves  convicted  criminals.  You 
may  laugh  at  the  idea  of  niy  asking  you  to  take 
such  cases  to  heart,  but  I  assure  you  in  all  serious- 
ness that  no  young  man  who  holds  a  position 
of  trust  of  this  kind  and  begins  to  speculate  in 
stocks  on  margin  is  free  from  this  terrible  possi- 
bility. 

I  wish  to  recall  to  your  minds  at  this  point  what 
I  said  at  the  outset  regarding  the  relation  between 
immoral  practices  and  the  necessary  functions  to  be 
performed  by  the  business  world.  You  will  see  that 
speculation  of  this  third  class,  apart  from  the  moral 
opprobiiiiiji  attaching  to  the  individual,  falls  under 
tEe^ondemnation  of  this  broader  point  of  view,  since 
it  is  destructive  of  standards  of  work  and  snaps  the 


■ 


SPECULATION 


135 


very  spirit  of  industry  on  which  economic  welfare 

depends. 

Such  are  the  three  classes  of  speculators  and  the 
problems  which  each  has  to  face.  It  would  be  hard 
to  draw  the  line  in  any  particular  case  in  passing 
judgment  upon  another  person,  but  I  am  sure  if 
you  keep  these  facts  and  principles  in  mind,  that 
your  own  consciences  will  be  able  to  tell  when  you 
individually  overstep  the  danger  line. 

It  is  not  possible  within  the  limits  of  this  lecture 
to  go  far  into  a  somewhat  different  problem,  namely, 
into  the  ethics  of  brokerage  rather  than  the  ethics 
5F  speculation.    The  Trokerr  on    the    exchanges, 
although  they  may   also  speculate  on  their  own 
accounts,    are    primarily    agents    acting    for    other 
people.    A  man  may  be  an  active  broker  and  never 
indulge  in  speculation  himself.     One  reason  why  the 
discussion  of  ethics  of  brokerage  is  less  important  is 
because  in  this  case  the  law  regulating  the  relation 
between  broker  and  customer  is  on  such  a  high 
moral  plane  that  it  may  almost  be  said  that  a  broker 
who  obeys  the  law  can  feel  pretty  safe  as  to  the\\ 
morality  of  his  conduct.     The  standard  which  the  W 
law  requires  of  agents  acting  for  principals  is  a  >v 
higher  standard  than  many  self-appointed  moralists 
are  able  to  set  for  themselves.     Let  me,  however, 
briefly  suggest  four  points: 

First    It  is  hardly  necessary  to  tell  you  that  the 
strictest  obedience  to  the  rules  of  the  exchange  and 


1/ 


136 


SPECULATION 


SPECULATION 


137 


;/ 


I" 


to  the  rules  of  law  on  the  part  of  the  broker  is  the 
first  essential  from  the  ethical  point  of  view.  It 
may  be  well,  however,  to  add  to  this  injunction  that 
a  broker  has  the  moral  responsibility  of  keeping 
free  from  the  slightest  suspicion  in  his  own  mind 
even  where  he  may  seem  to  be  technically  correct. 
I  have  already  referred,  for  instance,  to  the  prac- 
tice of  washed  sales.  No  honest  broker  would 
consciously  engage  in  such  a  practice.  On  the  other 
hand,  it  is  possible  that  he  may  be  an  innocent 
party  to  it  through  not  being  informed  by  his  prin- 
cipal as  to  what  is  in  the  wind.  But  it  frequently 
happens  that  without  knowing  definitely  that  some 
such  operation  is  being  carried  out,  the  very  move- 
ment of  the  market  is  an  indication  that  there  is 
something  suspicious  in  the  situation.  An  honest 
broker,  under  these  circumstances,  cannot  be  satis- 
fied in  saying  that  he  knows  nothing  about  it  and 
is  simply  there  to  carry  out  his  orders.  He  cannot 
continue  to  do  business  when  even  the  slightest 
suspicion  of  such  an  arrangement  rests  in  his  own 
mind. 

Second,  The  law  is  perfectly  clear  on  the  point 
that  where  a  broker  deals  for  a  customer  he  is  to 
receive  nothing  but  his  commissions  and  interest 
on  money  advanced.  Every  bit  of  the  risk  of  the 
transaction  falls  upon  the  customer  and  every  jot 
of  the  profit  is  morally  and  legally  his  due.  Some 
brokers  think  that  it  is  entirely  proper,  when  they 
have  received  an  order  to  sell  at  a  certain  price,  and 


are  able  to  carry  out  a  transaction  by  which  a  higher 
price  is  secured,  if  they  spUt  this  extra  profit  with 
the  customer.  It  seems  so  reasonable  for  them  to 
argue  that  when  they  might  have  satisfied  the  cus- 
tomer by  simply  fulfilling  the  letter  of  his  instruc- 
tions, and  then  by  special  intelUgence  or  exertion 
have  done  better  than  the  customer  expected,  that 
part  of  the  profit  is  their  due.  Such  an  argument  is 
equally  fallacious  in  law  and  morals.  The  broker 
would  never  expect  to  share  loss,  if  the  case  were 
reversed,  and  he  is  not  entitled  to  a  single  penny  of 
additional  remuneration  for  having  used  his  very 
best  ability  in  the  service  of  his  client. 

Third,  Every  broker  should  recognize  the  grave 
danger  of  engaging  in  speculation  himself.  I  w 
not  say  that  it  is  necessarily  wrong  for  a  broker  to 
speculate  on  his  own  account,  but  I  remind  you 
again  of  what  I  have  just  said  regarding  the  danger 
to  any  one  in  a  position  of  financial  trust.  A  broker 
is  in  such  position.  He  is  responsible  for  large  sums 
of  money  put  in  his  hands  by  his  customers  to  carry 
out  their  business.  Without  doing  anything  strictly 
illegal  for  the  time  being,  the  broker  may  become 
so  involved  in  his  own  speculations  as  to  seriously 
endanger  the  cUents  who  have  trusted  him.  Some- 
times this  comes  to  a  crisis  which  offers  a  very 
severe  temptation.  Suppose  a  brokerage  concern 
finds  itself  in  a  position  where  it  fears  for  its  own 
solvency,  and  at  this  juncture  large  sums  come 
in  from  customers,  which  the  firm  thinks  may  be 


ve     / 

.ill  / 


138 


SPECULATION 


adequate  to  pull  them  through  and  establish  them  on 
a  solid  basis  once  more.  It  seems  so  desirable  to 
take  the  money  of  the  customers  under  these  cir- 
cumstances, and  it  is  so  easy  to  convince  themselves 
that  the  customer  is  not  being  endangered  thereby. 
The  law  is  not  as  yet  sufficiently  stringent  in  the 
matter  of  prohibiting  the  receipt  of  further  deposits 
by  a  concern  which  cannot  at  the  moment  make 
good  its  own  obligations.  But  even  an  elementary 
sense  of  morality  should  make  a  broker  prefer  the 
disgrace  of  insolvency  to  the  abuse  of  a  customer's 
confidence. 

Fourth,  This  suggests  that,  strict  as  the  law  is 
in  these  regards,  there  are  certain  matters  where  the 
only  safeguard  of  the  business  public  is  the  adoption 
of  the  strictest  ethical  standard  on  the  part  of  the 
members  of  exchanges  afi*  their  goVernmg~fcrodies. 
There  are  some  things  which  cannot  be  regulated 
by  law  and  there  are  some  evils  which  never  can  be 
adequately  reached  by  legal  process.  Most  of  these 
can  be  eliminated  by  the  recognition  of  a  duty 
toward  the  public  on  the  part  of  all  persons  engaged 
in  transactions  of  this  kind.  I  think  the  one  thing 
most  needed  at  the  present  time,  to  lessen  the  evils 
of  stock  exchange  gambling,  is  a  resolve  on  the  part 
of  the  brokerage  fraternity  that  they  will  not  simply 
take  the  business  of  any  customer  who  comes,  in 
order  to  swell  their  own  commissions,  but  that  they 
will  recognize  it  to  be  immoral  conduct  to  accept 
accounts  from  persons  whom  they  well  know  to  be 


SPECULATION 


139 


running  serious  danger  by  their  indulgence  in  specu- 
lation. The  evils  of  speculation  on  a  small  margin 
are  such  that  I  think  the  stock  exchange  might 
properly  pass  rules  requiring  a  larger  margin  than  is 
now  given,  and  in  any  case  the  individual  members 
should,  so  far  as  is  possible,  make  themselves  familiar 
with  the  condition  of  their  customers,  and  even  at 
the  expense  of  losing  some  conmiissions  themselves, 
refuse  to  be  a  party  to  the  reckless  gambling  which 
in  many  cases  leads  to  such  utter  disaster. 

I  hope  that  you  young  gentlemen  will  carefully 
consider  the  propositions  which  I  have  given  you. 
If  you  become  brokers  yourselves,  above  all  do  not 
take  upon  your  consciences  the  burden  of  having 
acted  as  an  agent  for  men  who  were  engaged  in 
ruining  themselves;  and  if  you  become  speculators, 
keep  always  before  your  mind  the  awful  spectacle 
of  that  third  class  which  I  have  described,  and  the 
danger  that  would  threaten  each  one  of  you  that 
you  may  in  turn  become  a  member  of  its  tragic 
ranks. 


/ 


INDEX 


Absolute  Rates,  93-99. 

Accountancy,  basis  for  ethical 
standards,  17;  functions,  the 
extension  of  business  and 
fair  financial  statements,  18; 
organization  of,  as  a  business, 
22-24;  value  of  the  balance 
sheet,  32;  municipal  and  gov- 
ernmental accounts,  37-38; 
as  a  profession,  39-40.  See 
also  Auditing. 

Accountant,  province  of  coun- 
selor and  judge,  18-19;  essen- 
tial quahfications,  19;  rela- 
tions to  associates,  19-20, 
39-40;  to  staff,  22-24;  com- 
pensation and  contingent 
fees,  27-29,  36;  reading  and 
study,  29-30;  responsibility 
to  public,  30-37;  should  avoid 
speculation,  36-37;  as  a  leader 
of  honest  finance,  39. 

Accountant  and  chcnt,  rela- 
tions, 20-27;  candor  and  good 
faitli,  20-21;  justice  and  con- 
sideration, 21,  32;  trustee- 
sliip  of  interest  and  honor, 
21-22;  industry  and  ai)plica- 
tion,  22;  responsibility  in 
unimportant  eases,  24;  con- 
fidences inviolable,  25-26;  re- 
sponsibility on  witness  stand, 
2t)-27;     eonfliet     of     opinion 


Actions  at  law,  five  roles  in  a 
lawsuit,  62;  to  induce  settle- 
ments reprehensible,  63. 

Advertising,  influence  of  adver- 
tisers on  the  press,  4; 
editorials  versus  business 
poHcy,  6-7;  press  standards 
improving,  7-8,  12;  a  case 
of  money  refunded  to  adver- 
tisers, 7;  patent  medicines 
barred,  7;  news  bureaus  and 
"tainted  news,"  8;  Repub- 
lican advertisements  in  Demo- 
cratic papers,  9;  right  of 
corporations  to  influence  pub- 
lic opinion,  9;  distinction  be- 
tween news  and  advertising, 
9,  10;  honest  and  fraudulent 
advertising,  9;  periodicals 
guarantee,  10;  the  vicious 
"personal,"  11;  influence  of 
public  opinion  on  advertis- 
ing liquor,  cigarettes,  and 
firearms,  11;  buying  news 
space  for  advertising,  87- 
88. 


,  '> 


between,  33-35. 


"Anatomy  of  Exchange  Alley, 
mentioned,  126. 

Anecdote    of    the    farmer    and 
the  lawyer,  45. 

Attorney  and  client.     See  Law- 
yer and  client. 

Auditing,    English    and    Ameri- 
can corporation  law,  31;  ap- 


141 


142 


INDEX 


INDEX 


143 


pointmont  of  auditor,  31; 
value  of  baUmro  shoet,  32; 
rights  of  futuiv  st(H'kholilers, 
33-3.3;  languam'  and  ciualifi- 
cations  in  certiiicates,  35-30. 

Balance  sheet,  an  expression  of 

opinion,  not  of  facts,  32. 
Bigamy,  King  George  IV'd  trial 

for,  G(M)3. 
Bribery,    of    legislative    Ixxlies, 
51;    of    press    financial    col- 
umns, 12i). 
Brokerage,   "wash  sales"   prac- 
tice. 121)-130,  135;  high  stand- 
ard required  by  law,  135-13ti; 
risk     and     profit     belong     to 
customer,  13t>-137;  danger  of 
personal  speculation,   137. 
Brougham,  Lord,  famous  state- 
ment of  a  counsel's  duty,  01. 
Bucket  shop,  practices,  133. 
Business,   cooperation  and  spe- 
cialization in  modern  methods 
17-18;    effective    control    de- 
pendent on  good  accounting, 
18;    railroad    rates   determine 
location  and  kind,  92;    inad- 
equate raiUvMy  facilities  cause 
of    industrial    paralysis,    104; 
difference    between    merchant 
and  speculator,   110;  specula- 
tion inherent  in  modern,  125. 
Business  and  professional  ethics, 
how  determine  standards,  10; 
esteem  and  confidence  of  col- 
leagues essential,    lU-20,   30- 
40;     diff(T(>nt     standards     for 
professional  and  business  men, 


20-21;  confidences  inviolable, 
between  accountant  and  cli- 
ent, 25-20;  between  lawyer 
and  client,  40-50;  morality 
versus  legality  in  (}uestions 
of  law,  55-58;  cjuestion  of 
defending  a  guilty  client, 
58-03;  of  lawyers,  08-00; 
hindered  by  misaiiplied  con- 
demnation, 107-lOS,  111; 
knowknlge  of  facts  and  broad 
interpretation  of  functions  es- 
sential, 108-113;  duty  of 
corporation  manager  to  stock- 
holders, 127-129;  moral  re- 
sponsibility of  brokers,  135- 
139. 

Campaign  funds,  ethics  of  indi- 
vidual and  private  corporation 
contributions,  80),  87;  railroad 
contril)Utions,   87. 

Capital,  cannot  be  forced  to 
make  investments,  103,  104; 
confidence  in  fair  treatment 
necessary,   105. 

Capitalization,  of  railroads,  71, 
72;  value  of  C()ri)oration  prop- 
erty not  affected  by,  82. 

Captains  of  industry,  pirates 
of  finance,  77. 

Caroline,  Queen,  suit  against 
George    I\'    for    bigamy,    00- 

63. 

Certificates,  accountant's  re- 
sponsil)ility,  32,  35-30. 

Cicero,  cjuoted  on  prices,  93. 

Cigarettes,  advertisements  ex- 
cluded from  press,  11. 


Circulation  of  newspapers,  af- 
fected by  society  cohmm,   5. 

Cities,  growth  iniluenced  by 
railroad  rates,  92. 

Client.  See  Accountant  and 
client;  Lawyer  and  client. 

Coal  mining,  influenced  by  rail- 
road rates,  92;  discrimina- 
tion in  freight  rates,  90-97; 
relative  freight  rates,  99. 

Commercial  Ethics.  See  Busi- 
ness  and   professional   ethics. 

Compensation,  of  accountants, 
27-29,  30;  of  doctors  and  law- 
yers, 07-08;  of  brokers,   130. 

Competition,  moral  right  of 
private  capital,  78;  of  rail- 
roads disastrous,  78-80;  in 
private     business     necessary, 

79. 

Confidences,  inviolable  between 
aceountant  and  client,  25- 
20;  lawyer  and  client,  40-50. 
See  also  Privileged  communi- 
cations. 

Contingent  fees,  affect  relations 
between  accountant  and  cli- 
ent, 27-29,  3();  Ix^tween  law- 
yer and  client,  00-07. 

Corporation  lawyers,  as  direc- 
tors and  the  question  of 
privilege,  48,  51. 

Corporations,  advertising  rights, 
9;  modern  form  of  business 
administration,  17-18;  period- 
ical audit  of  accounts,  31. 
See  also  Railroads. 

Criminal  law,  no  man  bound 
to    incriminate    himself,    40, 


58;  defendant  as  witness  in 
his  own  behalf,  47. 
Criminals,  treatment  of  wealthy 
malefactors,  81. 

Delivery,  speculative  exchange 
methods  not  inherently 
wrong,    123. 

Democracy,  dependent  upon 
journalism,  2. 

Denman,  Lord,  counsel  for 
Queen  Caroline,  01. 

Direct  nominations,  New  York 
Sun's  inaccurate  statement  of 
Hapgood's  address  at  Albany, 

2-3. 

Discrimination  in  railroad  rates, 
absolute  rates,  93-98;  rela- 
tive rates,  99-101. 

Dividends,  seven  per  cent  rea- 
sonable railroad  rate,  98. 

Editorials,  not  independent  of 
business  policy,  0-7. 

Embezzling.  See  Misappropri- 
ation of  funds. 

Employees.  See  Railroad  em- 
ployees. 

England,  public  character  of 
railroads,  72. 

Erie  speculation,  referred  to, 
129. 

Ethics,  standards  of  judgment, 
1;  of  journalism,  1-15;  cheat- 
ing a  railroad,  85;  division  of 
society  into  two  classes,  108; 
expediency  versus  righteous- 
ness, 110-111.  See  also  Busi- 
ness and  professional  ethics. 


■I 

1  ** 


144 


INDEX 


INDEX 


145 


Faiiii>  !-  Mun.  i\'Iiitivo  po.-itioii 
oi    [tiillionaircs,    71. 

Finance.     Sec  Kailroad  finance. 

Fitzhfih.Tt.  Mi>.,  marriage  to 
Geonic  1\',  liO. 

Flour  millinf;,  influenced  hy 
railroad  rates,  92. 

Fluctuaiion  of  prices,  basis  and 
cau^e  of  speculation,  110, 
11  .V  11  s .  1 2.3 ,  by  manipula- 
tion, 1J7. 

Freight  rates.  See  Railroad 
rates. 

Futures,  in  business  transac- 
tions, 110;  in  wheat  specula- 
tion, 117,  iil>-120. 

Gambling.  See  Stock-gam- 
bhng. 

Gas  Company,  right  of  adver- 
tising, 9. 

George  I\'.  King,  trial  for  big- 
amy 'And  prrjury.  00-63. 

Government  accounts,  reforms, 

Government  control  of  rail- 
roads, supreme  court  deci- 
sions, 71.  72.  7:);  influence  on 
competition,    79;    state    'on- 

trol  of  (■n!np''tiTi\"c  railway 
building,  SO;  ju.stirr  in  fixing 
rates,  S4;  rates  ver.-^us  finan- 
cial operation.^,  So;  rates, 
hours  of  servic(%  and  appli- 
anct-s,  S();  manner  of  earnings 
regulated,  Ss;  cannot  force 
capital  to  invest,  103,  104; 
juilicial  not  legislative  prob- 
lem, 105. 


(lovernment  ownersliip.  forced 
1>\  inadecjiiat*'  facilities,  not 
excessive  charges,  104;  grave 
probability,    lOti. 

Graft,  in  railroad  building,  80- 
81. 

Granger  cases,  Supreme  Court 
decision,  73. 

Ilapgood,  Norman,  New  York 
Sun's  inaccurate  report  of 
Direct  Noiuinations  speech, 
2-3. 

Ilarriman,  E.  H.,  opinion  of 
government  regulation,  85. 

Hedging,  to  avoid  risk,  119;  de- 
pendent on  short  selling,  122. 

High  finance,  immoral,  128. 

History,  philosophy  teaching 
by  example,  43. 

Industrial  conditions,  misrepre- 
sented in  newspapers,  3;  in- 
fluence of  great  wealth  on 
material  development,  74. 

Industries,  influence  of  railroad 
rates  in  upbuilding,  92;  r.iil- 
road's  power  over  natural 
advantages.    1(^0. 

Inside  speculation,   IJ7  129. 

Insurance  companies,  exclusion 
of  fraudulent  a<lvertisinLi.  1>; 
court  decision  on  eanip.iigu 
funds,   87. 

Interstate  Commerce  Commis- 
sion, watered  stocks  decision, 
84;  Standaid  Oil  (  o.  proceed- 
ings, s7:  Mr.  iliU'-  testimony 
on  dividends,  98. 


Investments,  railroad  stocks  and 
securities,  81-84,  98;  railway 
investment  cannot  be  with- 
drawn, 102-104;  capital  can- 
not be  forced  by  legislation, 
103-104;  versus  speculation, 
82,  120-121.  See  also  Secu- 
rities. 

Isaac  of  York  and  the  modern 
idea  of  famous  men,  74. 

Journalism,  1-15;  responsibility 
for  statements,  1,  2;  demo- 
cratic government  dependent 
upon,  2;  interviews  forged 
entire,  3;  proper  and  improper 
suppression  of  facts,  3-4; 
influence  of  advertising,  4, 
6-7;  accuracy  sacrificed  to 
interest,  4;  privacy,  pubUcity, 
and  circulation,  5;  catering 
to  popular  demands,  6;  edi- 
torial policy  not  independent 
of  business  policy,  6-7;  hmit 
of  responsibility  in  printing 
both  sides,  10;  greater  free- 
dom of  political  thought,  13; 
influence  of  college  men,  14- 
15;  bribing  financial  columns, 
126.  See  also  Advertising; 
Yellow  journalism. 

Journalists,  professional  etliics 
changing,  12. 

Judges  vs.  juries,  province 
in  a  lawsuit,  62,  (J'S;  criticism 
of.  by  counsel,  ()3. 

Land  grants  to  railroads,  72. 
La  Voisier,  murder  trial,  oi). 


Law.  See  Criminal  law;  Eng- 
lish law;  Technicahties  in 
law. 

Lawsuits.  See  Actions  at  law; 
Trials. 

Lawyer  and  client,  confidential 
relations,  41,  64;  choo'^ing  a 
lawyer,  44-45;  duty  of  cUent 
to  tell  the  truth,  45-46;  con- 
fidences inviolable,  46-47; 
question  of  privilege,  47-51; 
duty  of  lawyer  in  giving  opin- 
ions, 51-52;  client  not  bound 
to  act  on  advice,  52;  position 
of  lawyer  if  advice  is  rejected, 
53 ;  legality  versus  morahty  in 
giving  opinions,  54,  in  advis- 
ing action,  55-56;  where  moral 
responsibility  for  action  rests, 
56-58;  question  of  defending 
a  guilty  cUent,  58-63;  coun- 
sel's duty  stated  by  Lord 
Brougham,  61;  riglit  to  ter- 
minate relations,  49-50,  53, 
64-65. 

Lawyers,  criticism  of  judge  and 
jury  reprehensible,  63;  neces- 
sity of  moral  perceptions, 
60. 

Lawyer's  fees,  compensation  for 
unperformed  services,  64-65; 
contingent  fees,  66-67;  rea- 
sonable compensation,  67-68. 

Legislation,  obtained  by  bribery, 
51. 

Liberty  of  the  press,  personal 
privacy  versus  publicity,  5; 
popular  demands  and  press 
responsibility',   6. 


140 


INDEX 


INDEX 


147 


LimitMtions.    See  Statute  of  lim- 

itations. 
l.iiniliMl  liability,  to  reduce  ritik 

lu  capital,  121, 

Mapazine^.     S(h^   Periodicals. 
Manipulation    of    prices,    nuth- 

ods.  r2<>-130;  by  corporation 

officials,  128-129. 
Margin  .^peculation,   iint    nccoa- 

siuily     inunoial.      121,      131; 

lf:\<lri  to  embezzlement,    133- 

l.;t;   evils  of  small   margins, 

13U. 

Merchant  and  speculator,  differ- 
ence between,  116-120. 

Millionaires,  ranked  as  famous 
men  to-day,  74;  influence  in 
making  U.  S.  a  world  power, 
74. 

Misappropriation  of  funds,  dan- 
ger to  men  in  positions  of 
trust,  133-134;  broker's  temp- 
tations,  137-138. 

Monopolies,  railroad,  71,  88. 

Morality,  matter  of  evolution, 
43. 

Municipal  finance,  reform  in 
accounting  methods,  37-38. 

Miinlrr.  ri,Liht  of  prisoner  to 
plead  not  guilty,  59. 

Natural  advantages  affected  l«y 

railroad  rates,  100. 
News  bureaus,  "tainted  news" 

method   of   advertising,   8,   9. 
Newspapers.     See  Journalism. 
Nominations.     See  Uirrct  noni- 

inatiuns. 


Occui)ations,  attractions  of  rail- 

roadiim.  71,  75,  7(). 
Olcoit    v<Tsus  The  Supervisors, 

Supreme   Court   decision,   72. 

Patent  medicines,  advertise- 
iiiciiis  liarred  from  the  press, 
7,  10. 

Peace,  influence  of  advertising 
firearms,  13. 

Periodicals,  tendency  to  guar- 
antee advertiseincni.-,    10. 

Phillips,  Charles,  conihict  of 
La  Voisier  murder  case,  59. 

Piiysicians,  excessive  fees,  07- 
68. 

Pirates  of  finance,  77. 

Political  campaign,  Republican 
advertisements  in  Democratic 
papers,  9. 

Politics,  influence  of  corpora- 
tions, 86. 

Prices,  fluctuations  basis  and 
cause  of  speculation.  110, 
115-118, 125;  medieval  theory, 
113;  modern  theory,  113-114; 
supply  and  demand,  116-117; 
manipulation  methods,  126- 
130;  fictitious,  created  by 
wash  sales,  129-130. 

Privacy,  invaded  by  the  press,  5. 

Privileged  communications,  in- 
violable, 46-47;  when  eom- 
iiiunications  are  not  privi- 
leged, 47-50. 

Produce   exchange,   not   subject 

to   manipulation,    12(>,    127. 
Professional    ethics.     Se<'    Busi- 
ness   and    professional  ethics. 


Profit,  fair  and  unlawful  rail- 
way, 76,  83,  101-104;  ethics 
of  tra(Ung  for,  112-113;  in 
speculation,    125-126. 

Prop(^rty,  economic  functions, 
111-113;     speculation     risks, 

115. 

Proudlion,  views  of  property 
and  tiie  stock  exchange,  HI, 

112. 

Public  Accountant.  See  Ac- 
countant. 

Public  service  corporations,  ad- 
vertising rights,  9.  See  also 
Railroads. 

Publicity  versus  privacy  in  the 

press,  5. 

Railroad  and  state.  See  Gov- 
ernment control. 

Railroad  building,  various  pur- 
poses besides  operating  at  a 
profit,  78;  graft  in  construct- 
ing, 80-81;  opportunities  for 
real  estate  speculation,   130- 

131. 

Railroad  employees,  duty  to 
public,  73,  89,  90,  91. 

Railroad  finance,  capitalization, 
public  and  private  sources, 
71,  72;  fair  and  unlawful 
profits,  76,  83,  101-101;  real 
value  and  capitalization,  81- 
82,  98;  speculation  versus 
investment  security,  82;  ac- 
tual investment  does  not  fix 
value,  S3;  watered  stocks  and 
the  remedy,  84;  seven  per 
cent,  dividends  sufficient,  98; 


to    impair    value    of    stocks 
would  punish  innocent  people, 
102-103;    extension    and    im- 
provements   demand    capital, 
103;  capital  cannot  be  forced 
by  legislation,   103-104. 
Railroad  management,  pohtical 
activity  and  influence,  85-87; 
legitimate    newspaper    adver- 
tising,   88;    relation    to    the 
pubhc,   SS-91;  power  of  the 
voters,     90,     91;     appeal     to 
courts  against  legislatures  and 
commissions,    90,    01;    direct 
appeal    to    the    people,    91; 
uncertainties   of   expense  and 
volume  of  business,  99. 
Railroad  rates,  government  reg- 
ulation, 72-73,  84,  86;  com- 
petition     increases,      79-80; 
based  on  fair  valuation,  not 
capital    stock,    83;     question 
of  ethical  limitations,  91-98; 
absolute  rates,  93-99;  discrim- 
ination unjust,  93-94;  deter- 
mination   of    just    standards, 
94-96;  '^what  the  traffic  will 
bear,"     96-98;     provide    for 
improvements     of     property, 
98;    relative    rates    and    dis- 
crimination, 99-101. 
Railroading,    opportunities   and 
temptations  as  a  calling,  75- 

77. 
Railroads,  public  servants,  71, 
76,  88,  101;  ethics  of  build- 
ing and  operating,  70,  77- 
85;  original  idea  of  a  public 
highway,     not     feasible,     70; 


148 


INDEX 


INDEX 


149 


pul)]i"  <<  rvico  but  priviito 
capilul,  7()^-7J;  <T.-itiis  in  Eng- 
land and  the  I  mud  Elates, 
72;  public  character  must  be 
understood  by  owners,  em- 
ployees, and  public,  73;  duty 
of  public  toward,  73,  101- 
104;  clieating  a  railroad,  85; 
function,  transportation  not 
government,  "^7:  future  ex- 
tension and  nnprovements, 
103-105.  See  also  Govern- 
ment control. 

Rates.    See  Railroad  rates. 

Real  estate  speculation  afforded 
by  railroads,   130-131. 

Relative  rates,  99-101. 

Reporting,  forged  interviews,  3. 

Right  of  way  for  railroads,  71. 

Risk,  medieval  theory,  113; 
modern  theory,  113-114;  in- 
herent in  all  actions  and 
business,  114-115,  125;  specu- 
lative ri.«^k,  1L5-120,  125;  how 
carried  by  speculators,  119- 
120;  hmited  hability  prin- 
ciple, 121;  stock  gambling, 
133-134;  belongs  to  customer, 
not  to  broker,  136. 

Salaries.  See  Compensation; 
Contingent  fees. 

Securities,  English  law  for  issu- 
ing, 31;  safeguarding  inves- 
tors, 31-37;  reliability  of 
public  accountant's  certifi- 
cates, 36-37;  stock  exchange 
prices  represent  real  value, 
121. 


S.  llin^'  short.     See  Short  pollinfr. 

Seventh  Hctrirniiit  of  New  ^ Oik, 
inaecunitc  r<  pi.ii  of  yellow 
Tirf<-  (luriiii:-  Spimi-li   War,  5. 

Shaw,  iicnuird,  tiieory  of  divi- 
sion of  societ\-  into  two 
classes,  H)^. 

Short  selling,  ethics  of,  1  no  n  l ; 
basis  of,  117;  not  ethically 
wrong,  122. 

Social  practices,  judged  by 
functions  performed,  109-112. 

Socialism,  theory  of  private 
property,  111-112. 

Society  column  in  the  daily 
press,  5. 

Spanish -American  War,  mis- 
statement concerning  Seventh 
Regiment,  5. 

Speculation,  by  accountants 
dangerous,  36-37;  speculative 
security  versus  investment 
security,  82,  120-121;  ethics 
of,  106-139;  immoral  prac- 
tices and  necessary  functions, 
108-115,  134;  dependent  upon 
fluctuating  values,  116-118; 
difference  between  merchant 
and  speculator,  116,  118;  real 
functions  of  professional,  IIG- 
122;  commodities  subject  to, 
118;  relieving  merchants  of 
risk,  118-120;  moral  evils  in- 
curred, 122-125;  inherent  in 
modern  business,  125;  honest 
and  dishonest  methods,  125- 
126;  by  corporation  officials, 
127-129;  wash  sales,  129-130; 
distinct  from  gambling,  132- 


133.  See  also  Delivery; 
Futures;  Margin  speculation; 
Prices;  Short  selling. 

Speculators,  professional,  125- 
130;  corporation  managers, 
127-128;  business  and  pro- 
fessional men,  130-132;  small 
gamblers,    132-135. 

Standard  Oil  Company,  news- 
paper advertising  methods, 
87-88. 

State  control.  See  Government 
control. 

Statute  of  limitations,  doubtful 
defense  illustrated,  45-46; 
moral  right  to  advise  use  of, 
54;  real  object  and  legitimate 
use,  56-58. 

Stock  exchange,  Proudhon's 
book  doubly  interpreted,  112; 
open  market  for  securities,  121 ; 
method  of  deUvery  not  inhe- 
rently wrong,  123;  opportu- 
nities for  manipulation,  126- 
127;  bucket  shop  methods, 
133.     See  also  Brokerage. 

Stock  gambUng,  versus  specu- 
lation, 132-133;  danger  to 
men  in  positions  of  trust, 
133-134;  responsibihty  of 
broker,  138-139. 

Stocks.  See  Investments;  Se- 
curities. 

Success,    significance    of    small 

things,  24. 
Supply     and     demand,     prices 

affected  by,  116-117,  118. 
Supreme   Court,   railroad   deci- 
sions, 72. 


"Tainted  news,"  8,  9. 

Taxation  of  railroads,  govern- 
ment control,  86. 

Technicalities  in  law,  effect  on 
the  guilty  and  the  innocent, 
46-47;  moral  right  to  take 
advantage  of,  55-57. 

Ten  commandments,  origin, 
43. 

Thomas  Aquinas,  theory  of 
trading  for  profit,  113. 

Transportation,  ethics  of,  70- 
106.     See  also  Railroads. 

Trials,  La  Voisier  murder  trial, 
59;  trial  of  King  George  IV 
for  bigamy,  60. 

United  States,  position  as  a 
world  power  due  to  great 
wealth,  74. 

Value.    See  Prices. 
Vice,  suppression  in  the  press, 
4. 

Wash  sales,  to  create  fictitious 
prices,  129-130. 

Watered  stock,  iniquitous  rail- 
road practices,  82;  protection 
of  innocent  holders,  83,  84; 
government  control  the  rem- 
edy, 84. 

Wealth,  distinction  accorded 
millionaires,  73,  74;  influence 
on  development  of  the  nation, 
74 ;  unlawful  accumulations, 
76;  immunity  of  malefactors, 
81 ;  acquired  in  railroad  world, 
75,  76,  102. 


inn 


T^'^")EX 


Wheat  speculation,  difference 
between  merchant  and  specu- 
lator, 116-117;  speculator  re- 
lieves merchant  of  risk,  119- 
120. 


Witnesses,    defendants    as,    47; 
function  of,  63. 

Yellow  journalism,   method,  5- 
6;  faults  and  merits,  13-14. 


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